This summary is based on the third quarter fiscal 2008 earnings call conducted by Pacific Sunwear of California Inc. (PSUN) on November 18, 2008.

Management:

- Chairwoman of the Board, Chief Executive Officer: Sally Frame Kasaks
- Chief Financial Officer, Senior Vice President, Secretary: Michael L. Henry

Key Investors Issues

- Net loss from continuing operations was $3.5 million or 5 cents per diluted share, versus income from continuing operations of $17.1 million, or 25 cents per diluted share in 2007.
- Sales were $324 million, a 5% decrease.

Year to Date Highlights:

- Sales were down 2% to $903 million.
- The firm realized a net loss of $36.8 million or 18 cents a share.

Third Quarter Highlights

Sales were $324 million, a 5% decrease versus $342 million in last year’s quarter as consumer spending decelerated.

- Total company same-store sales decreased 7% during the period with transactions up 3% and the average sale down 10%.
- The apparel business showed a solid 7% same-store sales increase and now represents 84% of total sales.
- Juniors apparel achieved same-store sales growth of 16% and now represents 51% of our apparel sales, with bullhead denim, especially the skinny and super-skinny styles, and tops the primary drivers for the quarter.
- The young men’s apparel business experienced a slight same-store sales decline as strength in bullhead denim and knits could not offset the weakness in tees and fleece.

Accessory same-store sales were down 28% and represented approximately 13% of the sales mix.

- E-commerce sales grew 46% to $10.6 million this year from $7.3 million last year.
- Gross margin declined 490 basis points to $93 million, or 28.7% of sales this year from $115 million or 33.6% of sales last year as merchandise gross margins declined 360 basis points, due primarily to higher markdowns.
- Non-merchandise gross margin costs were up 130 basis points, occupancy was up 140 basis points and buying costs were up 20 basis points as a result of deleveraging these costs on the negative 7% same-store sales result.
- Distribution expenses were down 30 basis points due to the consolidation of distribution centers near the end of the first quarter this year.

SG&A expenses, including goodwill and other store asset impairment charges of $10 million increased 370 basis points to $95 million, or 29.5% of sales this year from $88 million or 25.8% of sales last year.

- Asset impairments increased 260 basis points, primarily due to a $6.5 million goodwill impairment charge associated with two acquisitions the company made over 10 years ago.
- Depreciation and store payroll each increased 50 basis points, primarily due to deleveraging these costs against the negative 7% same-store sales result for the quarter.
- Net loss was $3.5 million or 5 cents per diluted share, versus income from continuing operations of $17.1 million or 25 cents per diluted share last year.
- The firm ended the quarter with $108 million in working capital, including $5 million in cash and inventories were up 12% per square foot year over year.
- It also had $43 million in direct borrowings under the $150 million credit facility, reflective of the annual peak period of working capital usage prior to the holiday season and it opened four new stores and closed two stores.

Fiscal 2008 Outlook:

- The firm currently expects to report a fourth quarter loss of 3 cents to 8 cents per diluted share, including an expected gain of approximately 11 cents per diluted share, resulting from the previously announced sale of the Anaheim distribution center.
- It expects to end fiscal 2008 with approximately $20 million in cash and no direct borrowings outstanding under the $150 million credit facility.
- Inventories will be down at least high-single-digits on a square foot basis versus the prior year.
- Year end total capital expenditures of approximately $80 million and with 931 total stores expected.

Key questions and answers from the third quarter earnings call conducted by Pacific Sunwear of California Inc. (PSUN) on November 18, 2008.

Adrienne Tennant (Friedman, Billings, Ramsey): How many of the stores are four-wall, non-profitable?

Michael L. Henry: Four-wall non-profitable we have approximately 100 stores. When you take back out depreciation, cash flow there are only about two dozen that are negative cash flow.

Kimberly Greenberger (Citigroup): Within your $30 million CapEx budget, could you just give us some rough guidance on any new stores, how many refreshes you are doing?

Michael L. Henry: There are just a handful of new stores, about a dozen relocations, and only four or five refreshes as we sit here right now, but we are continuing to work that number.