This summary is based on the fourth quarter fiscal 2008 earnings call conducted by Pacific Sunwear of California Inc. (PSUN) on March 12, 2009.
Management:
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Vice President Investor Relations: Gar Jackson
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Chairwoman of the Board & Chief Executive Officer: Sally Frame Kasaks
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Chief Financial Officer, Senior Vice President & Secretary: Michael L. Harry
Key Investors Issues
- Total sales dropped 8% to $352 million from $384 million last year.
- Net loss was $27.6 million or 42 cents a share versus income from continuing operations of $19.6 million or 28 cents per share last year.
Fourth Quarter Highlights
Total sales were $352 million this year versus $384 million last year, a decline of approximately 8% as the firm ended with 932 stores versus 954 last year.
- Same stores sales declined 10% and eCommerce sales grew 35% to nearly $18 million this year from $13 million last year.
- Gross margin declined to $57 million or 16.1% of sales this year from $122 million or 31.8% of sales last year.
- Merchandise gross margin declined 14.1 percentage points due to a highly promotional environment and aggressive efforts to clear fall inventories and non-merchandise gross margin costs were up 160 basis points.
Occupancy was up 190 basis points as a results of deleveraging these costs on a negative 10% same store sales result.
- Distribution expenses were down 30 basis points due to the consolidation of our distribution centers near the end of the first quarter of fiscal 2008.
- SG&A expenses including non-cash store asset impairment charges of approximately $12 million increased 440 basis points to $100 million or 28.4% of sales this year from $92 million or 24% of sales last year.
- Asset impairments accounted for 290 basis points of this increase.
- Although these expenses were down in dollars, they deleveraged 150 basis points in total due to the declining sales environment.
- Net loss from continuing operations was $27.6 million or 42 cents a share versus income from continuing operations of $19.6 million or 28 cents per share last year.
Review of Initiatives:
- The firm exited the underperforming and lowest margin sneaker category to focus attention on the higher margin, faster turning apparel business.
- It expects to experience a diminishing comp impact and the benefit to merchandise margins from this initiative as 2009 progresses.
- The company consolidated in to a single distribution center and enhanced the supply chain to lower cost, improve efficiency and shorten time to market.
- It significantly reduced inventory levels, cut planned cap ex and SG&A expenses and managed the balance sheet with a focus on enhancing liquidity and preserving financial flexibility.
The firm established a $150 million asset backed credit facility with JP Morgan and Bank of America as the primary lenders.
-It also ended the year with nearly $25 million in cash on the balance sheet and no direct borrowing on the credit facility.
- These actions seek to better position PacSun in the current environment and will enhance its ability to improve profitability over time.
- The firm realigned the organizational structure around brand and customer initiatives rather than channels of distribution.
Product assortment:
- The junior’s business driven primarily by fashion achieved a 23% increase year-over-year and the junior’s apparel business now represents 51% of total apparel sales.
- The young men’s apparel business grew 1% and represented 49% of apparel sales.
- Accessories represented 13% of sales mix for the year and in retrospect, the firm probably cut too deep on the accessory categories and walked away from some business in 2008.
Real Estate Portfolio:
- The firm ended the year with 932 stores that comprised approximately 3.5 million square feet.
- As it were liquidating footwear over the past year it became apparent that there was a value customer that the firm could serve better in many of the locations that average around $1 million in annual sales.
- The firm found that these stores situated in lower tiered malls or stripe centers catered to customer base seeking value.
As a result, Pacific began to expand this so called value assortment in these stores to also include additional apparel promotions and keep opening price points.
- After making these adjustments in product mix, many of these locations experienced modest improvement in sales and gross margins.
- The firm operates the single concept under two groups of stores: core; and value.
- The core PacSun stores are comprised of 525 locations primarily in A and B malls with the remainder being value stores which include our outlet.
- The plan for 2009 is to open three new stores, relocate or expand nine stores and to refresh three stores and closing through regular course of business between 35 and 50 stores per year as leases expire.
Fiscal Quarter 2009:
- Assuming a same stores sales decline in the 20% range the firm would expect to report a first quarter loss of $0.26 to $0.31 per diluted share.
- It expects SG&A dollars to be in the high $80 million range for the quarter.
