Pacific Sunwear (PSUN) May Not be a Good Pick: Here's Why

Pacific Sunwear of California Inc. PSUN, a specialty retailer of apparel, accessories and footwear, has been witnessing a downtrend in the Zacks Consensus Estimate following its disappointing second-quarter fiscal 2015 performance and a dismal outlook for the third quarter.

Shares of this Zacks Rank #4 (Sell) stock plunged roughly 47% since its last earnings release on Sep 8, and have nosedived 85.5% year to date. Moreover, the stock touched a 52-week low of 28 cents yesterday. Analysts polled by Zacks are not convinced about the stock's future performance. Over the past 30 days, the Zacks Consensus Estimate of a loss of 36 cents and 17 cents for fiscal 2015 and fiscal 2016 has widened by 11 cents and 7 cents, respectively.

Pacific Sunwear disappointed on the earnings front, reporting its second straight quarter of negative earnings surprise. The company recorded adjusted loss of 6 cents per share for the second quarter of fiscal 2015, wider than both the Zacks Consensus Estimate and the year-ago quarter loss per share of 3 cents.

Net sales of this Anaheim, CA-based company came in at $195.6 million, down 7.6% year over year and short of the Zacks Consensus Estimate of $205 million. Comparable-store sales (comps) fell 6%.

Management cited that soft performance across key seasonal categories consisting of shorts, swim and sandals was the primary reason behind the debacle. However, the company was quick to point out that it has undertaken cost-containment efforts and is focused on improving its omni-channel capacity.

Pacific Sunwear now envisions its bottom line to range between a loss of 5 cents and 13 cents per share for third-quarter fiscal 2015 compared with a loss of 3 cents recorded in the year-ago quarter. Moreover, management expects comps to decline in the range of 3%–6%.

Stocks that Warrant a Look

Better-ranked retail stocks that look promising include Foot Locker, Inc. FL, sporting a Zacks Rank #1 (Strong Buy), American Eagle Outfitters, Inc. AEO and Citi Trends, Inc. CTRN, both carrying a Zacks Rank #2 (Buy).

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