Pacific Sunwear Announces Fiscal 2006 Fourth Quarter and Year End Results

Provides Outlook for First Half of Fiscal 2007


ANAHEIM, Calif., March 15, 2007 (PRIME NEWSWIRE) -- Pacific Sunwear of California, Inc. (Nasdaq:PSUN) today reported its financial results for the fourth quarter and fiscal year ended February 3, 2007 ("fiscal 2006") and commented on its outlook for the first half of fiscal 2007.

Fourth Quarter Results

For the fourth quarter of fiscal 2006 (14 weeks), total sales were $458.2 million, an increase of 7.8 percent over total sales of $424.9 million for the fourth quarter of fiscal 2005 ended January 28, 2006 (13 weeks). Same-store sales decreased 4.3 percent for the comparable fourteen-week period ended February 3, 2007.

Net income for the fourth quarter of fiscal 2006 was $9.1 million, or $0.13 per diluted share, compared to $47.0 million, or $0.63 per diluted share, in the fourth quarter of fiscal 2005. Fourth quarter results for fiscal 2006 include asset impairment and inventory write-down charges of approximately $16.6 million net of tax, or $0.24 per diluted share, primarily attributable to the Company's previously announced plans to close 74 underperforming demo stores during fiscal 2007. Before the impact of these charges, net income for the fourth quarter of fiscal 2006 was $25.7 million, or $0.37 per diluted share, versus a comparable non-GAAP income of $45.2 million, or $0.60 per diluted share, for the fourth quarter of fiscal 2005.

Fiscal 2006 Results

Total sales for fiscal 2006 (53 weeks) were $1.45 billion, an increase of 4.0 percent over total sales of $1.39 billion for fiscal 2005 (52 weeks). Same-store sales decreased 4.7 percent for the comparable 53 week period ended February 3, 2007.

Net income for fiscal 2006 was $39.6 million, or $0.56 per diluted share, compared to $126.2 million, or $1.67 per diluted share, for fiscal 2005. Before the impact of the impairment charges noted above and the charge taken in the third quarter related to a severance obligation to our former CEO, net income for fiscal 2006 was $56.9 million, or $0.80 per diluted share, versus a comparable non-GAAP $117.5 million, or $1.55 per diluted share, for fiscal 2005.

Interim Chief Executive Officer Sally Frame Kasaks commented, "Although fiscal 2006 was disappointing from an earnings standpoint, we have moved aggressively to get the Company back on track and positioned for future growth. Key to this effort has been decreasing the inventory density in our stores to enable us to offer a clearer and more compelling merchandise presentation to our customers. We are also moving forward with our plans to close down 74 underperforming demo stores to improve the profitability of the division. Finally, we have introduced updated store design packages for both PacSun and demo, which are receiving encouraging initial responses."

A reconciliation of fourth quarter and year-to-date fiscal 2005 reported GAAP earnings to the non-GAAP measures contained in this press release is set forth below.


 Reconciliation of Fiscal 2005 Q4 GAAP Earnings
  to Non-GAAP Disclosure
 GAAP EPS as originally reported for Q4 2005               $    0.63
 Less impact of stock compensation and pre-opening rent 
  expenses                                                     (0.03)
                                                           ---------
 Adjusted non-GAAP EPS for Q4 2005
                                                           $    0.60
                                                           =========

 GAAP net income as reported for Q4 2005, in $000's        $  47,009
 Less stock compensation expenses, tax-effected               (1,611)
 Less pre-opening rent, tax-effected                            (176)
                                                           ---------
 Adjusted non-GAAP net income for Q4 2005                  $  45,222
                                                           =========

 Reconciliation of Fiscal 2005 Year-to-Date GAAP
  Earnings to Non-GAAP Disclosure
 GAAP EPS as originally reported for 2005                  $    1.67
 Less impact of stock compensation and pre-opening rent 
  expenses                                                     (0.12)
                                                           ---------
 Adjusted non-GAAP EPS for 2005
                                                           $    1.55
                                                           =========

 GAAP net income as reported for 2005, in $000's           $ 126,212
 Less stock compensation expenses, tax-effected               (7,141)
 Less pre-opening rent, tax-effected                          (1,590)
                                                           ---------
 Adjusted non-GAAP net income for 2005                     $ 117,481
                                                           =========

Stock Repurchase Program

At the end of fiscal 2006, the Company had $51 million remaining available for future share repurchases under the $100 million share repurchase authorization approved by the Company's board of directors on May 18, 2006.

Fiscal 2007 First Half Outlook

As previously announced, the Company is in the process of closing 74 underperforming demo stores. The Company will incur lease termination and severance costs during fiscal 2007 as the 74 demo stores close, but the specific amount and timing of those costs are not yet known. The earnings estimates provided below do not include the impact of such lease termination and severance charges. At this time, excluding the lease termination and severance costs, the Company is projecting earnings per diluted share for the first half of fiscal 2007 in the range of $0.23 to $0.27 based upon achieving total Company comparable store net sales in the flat to up low single digits range during that timeframe. The Company expects approximately 80% of the projected earnings result for the first half of fiscal 2007 to be generated during its second fiscal quarter. The Company intends to provide its outlook for the second half of fiscal 2007 when it reports its results for the second quarter.

About Pacific Sunwear of California, Inc.

Pacific Sunwear, operating under three distinct retail concepts, is a leading specialty retailer of everyday casual apparel, accessories and footwear designed to meet the needs of active teens and young adults. As of March 15, 2007, the Company operated 843 PacSun stores, 116 PacSun Outlet stores, 151 go-forward demo stores, and nine One Thousand Steps stores for a total of 1,119 stores in 50 states and Puerto Rico. The store counts reported above for demo do not include the 74 stores being closed. PacSun's website address is www.pacsun.com, merchandise carried in demo stores can be found at www.demostores.com, and information about One Thousand Steps can be found at www.onethousandsteps.com.

Conference Call Information

The Company will be hosting a conference call today at 1:45 pm Pacific Time. A telephonic replay of the conference call will be available beginning approximately two hours following the call for one week and can be accessed in the United States/Canada at (800) 642-1687 or internationally at (706) 645-9291; pass code: 2026999. For those unable to listen to the live Web broadcast on the Company's investor relations website at www.pacsun.com or to utilize the call-in replay, an archived version will be available on the Company's investor relations website through midnight, March 15, 2008.

The Pacific Sunwear of California logo is available at http://www.primezone.com/newsroom/prs/?pkgid=2087

Pacific Sunwear Safe Harbor

This press release contains "forward-looking statements" including, without limitation, statements regarding the Company's earnings projections for the first half of fiscal 2007, its assumption of flat to low single digit comp store sales results for the first half of fiscal 2007, and its expectation that approximately 80% of first half earnings will be generated in the second quarter of fiscal 2007. In each case, these statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company intends that these forward-looking statements be subject to the safe harbors created thereby. The Company is hereby providing cautionary statements identifying important factors that could cause the Company's actual results to differ materially from those projected in such forward-looking statements. The statements regarding fiscal 2007 earnings estimates are not historical facts and involve estimates, assumptions and uncertainties which could cause actual results to differ materially from those expressed in such forward-looking statements. Such uncertainties which could adversely affect our business and results include, among others, the following factors: our assumption of comparable same store sales during the first half of fiscal 2007 may be wrong and actual comparable same store sales may be higher or lower; our new concept (One Thousand Steps) is untested and may not be profitable or successful; changes in consumer demands and preferences may adversely affect our performance; higher than anticipated markdowns and/or higher than estimated selling, general and administrative costs; higher than anticipated costs associated with the previously announced planned closure of 74 demo stores; competition from other retailers and uncertainties generally associated with apparel retailing; merchandising/fashion sensitivity; sales from private label merchandise, expansion and management of growth; reliance on key personnel; dependence on a single distribution facility; economic impact of natural disasters, terrorist attacks or war/threat of war; shortages of supplies and/or contractors, as a result of natural disasters or terrorist acts, could cause unexpected delays in new store openings, relocations or expansions; reliance on foreign sources of production; credit facility financial covenants and other risks outlined in the company's SEC filings, including but not limited to the Annual Report on Form 10-K for the year ended January 28, 2006 and subsequent periodic reports filed with the Securities and Exchange Commission. Historical results achieved are not necessarily indicative of future prospects of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company assumes no obligation to update or revise any such forward-looking statements to reflect events or circumstances that occur after such statements are made. Nonetheless, the Company reserves the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this press release. No such update shall be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any other updates.


                      PACIFIC SUNWEAR OF CALIFORNIA, INC.
                          SUMMARY STATEMENTS OF INCOME
            (unaudited, in thousands except share and per share data)

                      Fourth Quarter Ended        Fiscal Year Ended
                    ------------------------  ------------------------
                      FEB. 3,      JAN. 28,     FEB. 3,      JAN. 28, 
                       2007          2006        2007          2006
                    -----------  -----------  -----------  -----------
 Net sales          $   458,236  $   424,944  $ 1,447,204  $ 1,391,473
 Gross margin           144,365      154,346      445,397      506,491
 Selling, G&A 
  expenses              130,464       80,599      385,802      309,218
                    -----------  -----------  -----------  -----------
 Operating income        13,901       73,747       59,595      197,273
 Interest income, 
  net                     1,027        1,841        4,620        5,673
                    -----------  -----------  -----------  -----------
 Income before 
  taxes                  14,928       75,588       64,215      202,946
 Income tax 
  expense                 5,865       28,579       24,594       76,734
                    -----------  -----------  -----------  -----------
 Net income         $     9,063  $    47,009  $    39,621  $   126,212
                    ===========  ===========  ===========  ===========
 Net income per
  share, basic      $      0.13  $      0.63  $      0.56  $      1.69
                    ===========  ===========  ===========  ===========
 Net income per
  share, diluted    $      0.13  $      0.63  $      0.56  $      1.67
                    ===========  ===========  ===========  ===========
 Wtd avg shares
  outstanding, 
  basic              69,481,032   74,085,637   70,800,912   74,758,874
                    ===========  ===========  ===========  ===========
 Wtd avg shares
  outstanding, 
  diluted            69,815,699   74,846,162   71,170,181   75,713,793
                    ===========  ===========  ===========  ===========


                     PACIFIC SUNWEAR OF CALIFORNIA, INC.
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                          (unaudited, in thousands)

                                                   FEB. 3,   JAN. 28,
                                                    2007       2006
                                                  --------   --------
 ASSETS
 Current assets:
 Cash & cash equivalents                          $ 52,267   $ 95,185
 Short-term investments                             31,500     74,911
 Inventories                                       205,213    215,140
 Other current assets                               46,255     41,485
                                                  --------   --------
   Total current assets                            335,235    426,721
 Property and equipment, net                       420,886    355,822
 Other long-term assets                             17,122     25,018
                                                  --------   --------
 Total assets                                     $773,243   $807,561
                                                  ========   ========
 LIABILITIES AND SHAREHOLDERS' EQUITY
 Current liabilities:
 Accounts payable                                 $ 66,581   $ 47,550
 Other current liabilities                          73,952     74,921
                                                  --------   --------
   Total current liabilities                       140,533    122,471
 Deferred lease incentives                          89,371     81,440
 Deferred rent                                      30,619     28,748
 Other long-term liabilities                         9,367     28,112
                                                  --------   --------
 Total liabilities                                 269,890    260,771
 Total shareholder's equity                        503,353    546,790
                                                  --------   --------
 Total liabilities and shareholders' equity       $773,243   $807,561
                                                  ========   ========


                   PACIFIC SUNWEAR OF CALIFORNIA, INC.
                     CONDENSED CONSOLIDATED CASH FLOWS
                        (unaudited, in thousands)

                                                   FISCAL YEAR ENDED
                                                   FEB. 3,   JAN. 28, 
                                                    2007       2006
                                                 ---------  ---------
 Cash flows from operating activities:
 Net income                                      $  39,621  $ 126,212
 Depreciation & amortization                        72,529     63,161
 Non-cash stock-based compensation                   6,220         --
 Tax benefits related to exercise of stock
  options                                              556      8,378
 Loss on impairments/disposals                      25,536        300
 Changes in operating assets and liabilities:
  Inventories                                        9,927    (40,380)
  Accounts payable and other current liabilities    13,344     26,935
  Other assets and liabilities                      (6,093)      (341)
                                                 ---------  ---------
   Net cash provided by operating activities       161,640    184,265

 Cash flows from investing activities:
  Purchases of short-term investments             (296,031)  (813,538)
  Maturities of short-term investments             339,442    817,850
  Capital expenditures                            (157,788)  (109,174)
                                                 ---------  ---------
   Net cash used in investing activities          (114,377)  (104,862)

 Cash flows from financing activities:
  Repurchases of common stock                      (99,346)   (65,643)
  Proceeds from exercise of stock options            8,570     18,667
  Excess tax benefits related to stock-based
   compensation                                        942         --
  Repayments under long-term debt and capital
   leases                                             (347)    (1,550)
                                                 ---------  ---------
   Net cash used in financing activities           (90,181)   (48,526)
                                                 ---------  ---------

                                                 ---------  ---------
 Net decrease in cash and cash equivalents         (42,918)    30,877
 Cash and cash equivalents, beginning of
  period                                            95,185     64,308
                                                 ---------  ---------
 Cash and cash equivalents, end of period        $  52,267  $  95,185
                                                 =========  =========


                          PACIFIC SUNWEAR OF CALIFORNIA, INC.
                            SELECTED STORE OPERATING DATA

                                                 FEB. 3,    JAN. 28,
                                                  2007        2006
                                                 ------      ------
 Stores open at beginning of fiscal year          1,105         990
 Stores opened during the fiscal year               100         126
 Stores closed during the fiscal year                (6)        (11)
                                                 ------      ------
 Stores open at end of period                     1,199       1,105

 PacSun stores                                      849         811
 Outlet stores                                      116          96
 demo stores (a)                                    225         198
 One Thousand Steps stores                            9          --
                                                 ------      ------
 Total stores                                     1,199       1,105

 Total square footage at end of period (in 000's) 4,324       3,931

 (a) Store counts for demo as of February 3, 2007 include the 74 
     underperforming stores planned to be closed during fiscal 2007.


            

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