Pacific Sunwear Jumps on Narrower-than-Expected Q3 Loss

After missing the Zacks Consensus Estimate for two consecutive quarters, Pacific Sunwear of California Inc. PSUN reported loss per share of 5 cents in the third-quarter of fiscal 2015 that fared better than the Zacks Consensus Estimate of a loss per share of 7 cents. Consequently, the company's shares catapulted more than 36% during after-market trading hours yesterday. However, the reported figure was wider than the loss per share of 3 cents in the prior-year period.

On a GAAP basis, the company reported a loss of 5 cents per share compared with a loss of 1 cent per share reported in the year-ago quarter.

Detailed Performance

Net sales of this Anaheim, CA-based specialty retailer were $205.9 million, down 3% year over year but surpassed the Zacks Consensus Estimate of $201 million. In the quarter under review, comparable store sales including e-commerce net sales declined 3%. E-commerce net sales jumped 8% in the quarter and represented 7% of total net sales.

The company's Men's section comps declined 3% and women's section comps waned 2%. The decline in men's sales was mostly due to shorts, graphic tees and non-apparels whereas the decrease in women's sales was due to the dismal performance of non-apparels.

Gross profit came in at $51.8 million in comparison to $56.7 million, with gross margin contracting 160 basis points to approximately 25.1%.

Operating loss slightly widened to $1.6 million from a loss of $1.3 million in the prior-year quarter.

Pacific Sunwear, under its President and CEO Gary H. Schoenfeld, has undertaken several initiatives to strengthen and grow its brand with a hope to turnaround the company's performance. The company's CEO said: "We have been encouraged by improving trends over the past 90 days leading to Q3 results at the high-end of our guidance, an 11% comp on Black Friday and a 1% comp for November."

Financial Update

Pacific Sunwear ended the quarter with cash and cash equivalents of $11.3 million along with long-term debt of nearly $97 million.

Store Update

At quarter end, the company operated 611 stores as against 620 outlets a year ago. In the third quarter of fiscal 2015, the company opened 4 stores and closed 1 store. Going ahead, management intends to shut down approximately 15-20 underperforming stores during the fourth quarter.

Guidance

The company estimates the bottom line to range between a loss of 14 cents to 4 cents per share for fourth-quarter fiscal 2015, compared with a loss of 10 cents in fourth-quarter fiscal 2014. Currently, the Zacks Consensus Estimate for the fourth quarter is pegged at a loss of 10 cents a share, which is within the range provide by the company. Management projects revenues between $223 million and $237 million.

Moreover, management expects comps to be in the range of -3% to 3%. Gross margin (including buying, distribution and occupancy) is projected at around 24%–26% while SG&A is anticipated to range from $62 million to $63 million in the fourth quarter.

Pacific Sunwear currently has a Zacks Rank #3 (Hold).

Stocks to Consider

 Better-ranked stocks in the industry include American Eagle Outfitters, Inc. AEO, Foot Locker, Inc. FL and Genesco Inc. GCO. All three stocks hold a Zacks Rank #2 (Buy).

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