Pacific Sunwear of California, Inc. (PSUN)
Q1 2009 Earnings Call Transcript
May 21, 2009 4:45 p.m. ET

Executives

Gar Jackson – Vice President of Investor Relations
Sally Frame Kasaks – Chairwoman of the Board & Chief Executive Officer
Michael L. Henry – Chief Financial Officer, Senior Vice President & Secretary

Analysts

Christine Chen – Needham & Company
Liz Dunn – Thomas Weisel Partners, LLC
Janet Kloppenburg – JJK Research
Liz Pierce – Roth Capital Partners
Jeffrey Van Sinderen – B. Riley & Co.
Anna Andreeva – JPMorgan
Elena – KeyBanc Capital Markets
Sean Naughton – Piper Jaffray & Co.
Connie Wong – Wedbush Morgan
Julia Harrington – Credit Suisse
Simon Steikel – FBR

Presentation

Operator

Good afternoon. My name is Maggie and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter 2009 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press “*” then the number “1” on your telephone keypad. If you would like to withdraw your question, press the “#” key. Thank you. Mr. Jackson, you may begin the conference.

Gar Jackson

Thanks. Good afternoon and welcome to the Pacific Sunwear of California conference call announcing the company’s first quarter financial results. This is Gar Jackson, Vice President of Investor Relations. This call is being recorded and the playback will be available starting today approximately two hours after the call through midnight May 28, 2009. It can be accessed at 800-642-1687 or 706-645-9291, pass code 99066033. The call also will be archived on the PacSun website at www.pacsun.com through midnight August 19, 2009.

Your speakers today are Sally Frame Kasaks, Chief Executive Officer, and Mike Henry, Chief Financial Officer. Today’s call will be limited to one hour and questions will be limited to one per participant.

Before I turn the call over to Sally I would like to note that statements and discussions during today’s call will contain forward-looking information including forecasts of future financial performance and statements about our future prospects and proposed developments or business strategies.

Actual results can differ materially from those projected or reflected in our forward-looking statements and reported results should not be considered an indication of future performance. The potential risks and uncertainties that can cause the company’s business and financial results to differ materially from those in the forward-looking statements are included in the company’s Form 10-K for the fiscal year ended February 2, 2008 as well as in the earnings press release included as an exhibit to the Form 8-K that we furnished to the SEC today. Both of these documents can also be found in the Investor Relations section of our corporate website at www.pacsun.com.

All information discussed on the call is as of today, May 21, 2009. Pacific Sunwear does not intend and undertakes no duty to update this information to reflect future events or circumstances. This call, the webcast and its replay are the property of Pacific Sunwear. It is not for rebroadcast or use by any other party without the prior written consent of Pacific Sunwear.

With that said, I’ll now turn the call over to Sally.

Sally Frame Kasaks

Thank you, Gar. Good afternoon and thank you for joining us today. I will begin with an overview of the first quarter and then turn the call over to Mike Henry, our Chief Financial Officer, who will discuss our financial results. We will then open the line for questions.

Overall, I believe that our first quarter results reflect our continuing efforts to manage our business through what has been a very challenging environment. We finished the first quarter ahead of the earnings guidance we provided in March due to a combination of factors including somewhat better than expected sales results, improved merchandise margins and rigorous expense management. Also contributing to these results was our disciplined inventory management strategy. We ended the quarter with inventory down 31% in dollars and 25% in units.

Our balance sheet is in good shape with $104 million in working capital including $32 million in cash and no borrowings against our credit facility. Let us now turn to the specifics of the quarter.

Apparel represented approximately 88% of our total sales versus 77% during the first quarter last year. Apparel same-store sales were down 7% in the quarter primarily as a result of lower average unit retail driven by planned lower opening price points. However, we saw the benefits of improved merchandise margins.