Pacific Sunwear Announces Third Quarter Earnings Results


ANAHEIM, Calif., Nov. 20, 2007 (PRIME NEWSWIRE) -- Pacific Sunwear of California, Inc. (Nasdaq:PSUN) today announced that total sales for the third quarter (13 weeks) of fiscal 2007 ended November 3, 2007, were $373.1 million, a decrease of 0.6 percent from total sales of $375.4 million for the third quarter (13 weeks) of fiscal 2006 ended October 28, 2006.

Total Company same-store sales increased 5.0 percent during the third quarter of fiscal 2007. By concept, PacSun same-store sales increased 7.7 percent and demo same-store sales decreased 18.3 percent. Due to the 53rd week in fiscal 2006, same-store sales for the third quarter of fiscal 2007 are compared to the thirteen-week period ended November 4, 2006.

For the third quarter of fiscal 2007, the Company recorded a GAAP net loss of $20.0 million, or $(0.29) per diluted share, compared to GAAP net income of $9.0 million, or $0.13 per diluted share, for the third quarter of fiscal 2006. Store asset impairments and inventory reserves associated with the Company's demo stores accounted for approximately $31 million in after-tax charges, or $(0.45) per diluted share. Excluding these charges and their related tax rate implications, the Company generated non-GAAP net income of $11.1 million, or $0.16 per diluted share, for the third quarter of fiscal 2007. A reconciliation of the GAAP to non-GAAP financial measures above is contained at the end of this press release.

"I am very pleased by the progress shown by our core PacSun business during the third quarter," commented Sally Frame Kasaks, Chief Executive Officer. "We completed a strong back-to-school season, driven by continued progress in improving our juniors' business and steady performance from our guys' business."

Total sales for the first three quarters (39 weeks) ended November 3, 2007 were $1,038.0 million, an increase of 4.9 percent over total sales of $989.0 million during the first three quarters (39 weeks) ended October 28, 2006.

Total Company same-store sales increased 2.0 percent during the first three quarters. By concept, PacSun same-store sales increased 4.0 percent and demo same-store sales decreased 13.7 percent. Due to the 53rd week in fiscal 2006, same-store sales for the first three quarters of fiscal 2007 are compared to the 39-week period ended November 4, 2006.

For the first three quarters of fiscal 2007, the Company recorded a GAAP net loss of $35.6 million, or $(0.51) per diluted share, compared to GAAP net income of $30.6 million, or $0.43 per diluted share, in the first three quarters of fiscal 2006 ended October 28, 2006. Store asset impairments, lease termination charges, inventory reserves and other liquidation charges associated with the Company's demo and One Thousand Steps stores accounted for approximately $48 million in after-tax charges, or $0.69 per diluted share. Excluding these charges and their related tax rate implications, the Company generated non-GAAP net income of $12.8 million, or $0.18 per diluted share, for the first three quarters of fiscal 2007. A reconciliation of the GAAP to non-GAAP financial measures above is contained at the end of this press release.

Financial Outlook

Assuming a flat to low-single digit increase in total Company same-store sales for the fourth quarter, the Company expects fourth quarter earnings in the range of $0.26 to $0.29 per diluted share. This earnings range does not include any potential lease termination or other disposition-related charges that may occur associated with the demo or One Thousand Steps businesses at any time in the future.

As a result of the Company's previously announced plans to explore strategic alternatives for its demo stores and to close its One Thousand Steps stores, and the uncertainty regarding the financial impact those plans may produce, the Company is also providing non-GAAP earnings guidance associated with its core PacSun business on a stand-alone basis. Accordingly, assuming a low-single digit increase in PacSun same-store sales for the fourth quarter, the Company is comfortable with fourth quarter non-GAAP earnings, excluding demo and One Thousand Steps and any associated potential lease termination or other disposition-related charges that may occur at any time in the future, in the range of $0.32 to $0.35 per diluted share.

About Pacific Sunwear of California, Inc.

Pacific Sunwear 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 November 3, 2007, the Company operated 838 PacSun stores, 119 PacSun Outlet stores, 154 demo stores and 9 One Thousand Steps stores for a total of 1,120 stores in 50 states and Puerto Rico. PacSun's website address is www.pacsun.com, merchandise carried at demo stores can be found at www.demostores.com and information about One Thousand Steps can be found at www.onethousandsteps.com. On October 24, 2007, the Company announced that it would be seeking strategic alternatives for its demo division and would be closing its One Thousand Steps division as soon as is practical.

The Company will be hosting a conference call today at 2:00 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: 24025382. For those unable to listen to the live Web broadcast on the Company's investor relations website www.pacsun.com, or utilize the call-in replay, an archived version will be available on the Company's investor relations Web site through midnight, November 20, 2008.

The Pacific Sunwear of California logo is available at http://www.primenewswire.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 fourth quarter of fiscal 2007, its assumptions of a flat to low-single digit increase in total Company same-store sales and a low-single digit same-store sales increase for its PacSun business in the fourth quarter, the Company's plans to explore strategic alternatives for its demo stores and to close its One Thousand Steps stores, and the Company's continued progress in improving its juniors' business. 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. These statements 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 fourth quarter of fiscal 2007 may be wrong and actual comparable same store sales may be higher or lower; 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 lease termination costs or inventory liquidation charges associated with the Company's demo and One Thousand Steps 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; 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 February 3, 2007 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)

                       Third Quarter Ended   First Three Quarters Ended
                    ------------------------  ------------------------ 
                      NOV. 3,      OCT. 28,      NOV. 3,     OCT. 28, 
                       2007          2006         2007         2006
                    -----------  -----------  -----------  -----------
 Net sales          $   373,148  $   375,427  $ 1,037,951  $   988,996
 Gross margin           111,099      106,342      284,988      301,049
 Selling, G&A
  expenses              148,849       92,562      350,491      255,355
                    -----------  -----------  -----------  -----------
 Operating (loss)/
  income                (37,750)      13,780      (65,503)      45,694
 Interest income,
  net                       652          709        2,162        3,594
                    -----------  -----------  -----------  -----------
 (Loss)/Income
  before taxes          (37,098)      14,489      (63,341)      49,288
 Income tax
  (benefit)/expense     (17,061)       5,506      (27,744)      18,729
                    -----------  -----------  -----------  -----------
 Net (loss)/income  $   (20,037) $     8,983  $   (35,597) $    30,559
                    ===========  ===========  ===========  ===========
 Net (loss)/income
  per share, basic  $     (0.29) $      0.13  $     (0.51) $      0.43
                    ===========  ===========  ===========  ===========
 Net (loss)/income
  per share, 
  diluted           $     (0.29) $      0.13  $     (0.51) $      0.43
                    ===========  ===========  ===========  ===========
 Wtd avg shares
  outstanding, 
  basic              69,765,113   69,344,402   69,678,733   71,274,716
                    ===========  ===========  ===========  ===========
 Wtd avg shares
  outstanding,
  diluted            69,765,113   69,561,420   69,678,733   71,657,385
                    ===========  ===========  ===========  ===========

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

                                        NOV. 3,    FEB. 3,   OCT. 28,
                                         2007       2007       2006
                                       --------   --------   --------
 ASSETS
 Current assets:
 Cash & cash equivalents               $ 37,179   $ 52,267   $ 55,453
 Short-term investments                      --     31,500         --
 Inventories                            242,210    205,213    252,680
 Other current assets                    71,604     46,255     32,120
                                       --------   --------   --------
  Total current assets                  350,993    335,235    340,253
 Property and equipment, net            394,785    420,886    419,396
 Other long-term assets                  43,515     17,122     16,350
                                       --------   --------   --------
 Total assets                          $789,293   $773,243   $775,999
                                       ========   ========   ========

 LIABILITIES AND SHAREHOLDERS' EQUITY
 Current liabilities:
 Accounts payable                      $106,352   $ 66,581   $ 77,911
 Other current liabilities               66,113     73,952     67,807
                                       --------   --------   --------
  Total current liabilities             172,465    140,533    145,718
 Deferred lease incentives               78,201     89,371     86,377
 Deferred rent                           28,408     30,619     31,039
 Other long-term liabilities             35,411      9,367     21,383
                                       --------   --------   --------
 Total liabilities                      314,485    269,890    284,517
 Total shareholder's equity             474,808    503,353    491,482
                                       --------   --------   --------
 Total liabilities and shareholders'
  equity                               $789,293   $773,243   $775,999
                                       ========   ========   ========

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

                                                THREE QUARTERS ENDED
                                                NOV. 3,      OCT. 28, 
                                                  2007         2006
                                               ---------    ---------
 Cash flows from operating activities:
 Net (loss)/income                             $ (35,597)   $  30,559
 Depreciation & amortization                      58,295       52,632
 Non-cash stock based compensation                 5,119        5,392
 Tax benefits related to exercise of stock
  options                                            320        1,556
 Excess tax benefits related to stock-based
  compensation                                      (292)        (963)
 Loss on disposal of property and equipment       63,001          373
 Changes in operating assets and liabilities:
  Inventories                                    (36,997)     (37,540)
  Accounts payable and other current
   liabilities                                    31,724       11,482
  Other assets and liabilities                   (39,709)      21,124
                                               ---------    ---------
   Net cash provided by operating activities      45,864       84,615
 Cash flows from investing activities:
  Purchases of short-term investments           (171,400)    (226,503)
  Maturities of short-term investments           202,900      301,414
  Purchases of long-term investments             (23,300)        --
  Capital expenditures                           (94,939)    (107,087)
                                               ---------    ---------
   Net cash used in investing activities         (86,739)     (32,176)
 Cash flows from financing activities:
  Repurchases of common stock                         --      (99,347)
  Excess tax benefits related to stock-based
   compensation                                      292          963
  Proceeds from exercise of stock options          2,237        6,532
  Net borrowings under long-term leases           23,258         (319)
                                               ---------    ---------
   Net cash provided by/(used in) financing
    activities                                    25,787      (92,171)
                                               ---------    ---------
 Net (decrease) in cash and cash equivalents     (15,088)     (39,732)
 Cash and cash equivalents, beginning of period   52,267       95,185
                                               ---------    ---------
 Cash and cash equivalents, end of period      $  37,179    $  55,453
                                               =========    =========

                      PACIFIC SUNWEAR OF CALIFORNIA, INC.
                        SELECTED STORE OPERATING DATA

                                           NOV. 3, 2007  OCT. 28, 2006
                                           ------------  -------------
 Stores open at beginning of fiscal year      1,199          1,105
 Stores opened during the fiscal year            14             67
 Stores closed during the fiscal year           (93)            (3)
                                           ------------  -------------
 Stores open at end of period                 1,120          1,169

                             NOV. 3, 2007      OCT. 28, 2006
                           ----------------    ----------------
                                    Square              Square
                             # of   Footage      # of   Footage
                            Stores  (000's)     Stores  (000's)
                           ----------------    ----------------

 PacSun stores               838     3,186       835     3,136
 Outlet stores               119       481       110       446
 d.e.m.o. stores             154       439       215       603
 One Thousand Steps stores     9        24         9        24
                           ----------------    ----------------
 Total stores              1,120     4,130     1,169     4,209




 Reconciliation of GAAP to non-GAAP financial measures
 -----------------------------------------------------

 This earnings release for the third quarter ended November 3, 2007
 contains certain non-GAAP financial measures. Provided in the tables
 below is a reconciliation of the relevant GAAP measure to the non-GAAP
 measure contained in this earnings release. Only line items affected
 by these non-GAAP adjustments are included in the tables below. All
 amounts are expressed in millions of dollars, except earnings per
 share. Non-GAAP earnings are derived by starting with the GAAP number
 on the left and subtracting the relevant non-GAAP adjustments while
 moving to the right by line item.

 The Company believes that the non-GAAP measures presented in the
 earnings release and below in the reconciliation tables are useful to
 investors, as they provide an alternative method for measuring the
 Company's operating performance and comparing it against prior
 periods' performance without reference to the income statement impact
 of store asset impairment charges associated with demo stores and
 inventory reserve charges associated with both demo and One Thousand
 Steps stores. These non-GAAP financial measures may be different from
 non-GAAP financial measures used by other companies. Non-GAAP
 financial measures should not be considered a substitute for, or
 superior to, measures of financial performance prepared in accordance
 with GAAP. As used herein, "GAAP" refers to accounting principles
 generally accepted in the United States.

 Reconciliation of fiscal 2007 third quarter GAAP earnings to non-GAAP
 earnings:

 Non-GAAP earnings for the third quarter of fiscal 2007 exclude the
 income statement impact of store asset impairment charges associated
 with demo stores and inventory reserve charges associated with both
 demo and One Thousand Steps.

                                      Non-GAAP
                                     Adjustments
                                   Attributable to
                                    demo and One
                    GAAP Amounts   Thousand Steps     Non-GAAP Amounts

 Gross Margin/(Loss)   $111.1            $(4.5)             $115.6
 SG&A                   148.8              49.5               99.3
 Operating (Loss)
  Income                (37.8)            (54.1)              16.3
 Income Tax (Benefit)/
  Expense               (17.1)            (22.9)               5.8
 Net (Loss)/Income      (20.0)            (31.1)              11.1
 (Loss)/Earnings
  Per Share            $(0.29)           $(0.45)             $0.16



 Reconciliation of fiscal 2007 first three quarters' GAAP earnings to
 non-GAAP earnings:

 Non-GAAP earnings for the first three quarters of fiscal 2007 exclude
 the income statement impact from the liquidation of 74 demo store
 closures and store asset impairment and inventory reserve charges
 associated with both demo and One Thousand Steps stores.

                                               Non-GAAP
                             Non-GAAP         Adjustments
                            Adjustments     Attributable to
                           Attributable to     demo and
                    GAAP   74 demo Store     One Thousand    Non-GAAP
                  Amounts    Closures           Steps        Amounts

 Net Sales        $1,038.0      $13.3           $--         $1,024.6
 Gross Margin/
  (Loss)             285.0      (15.2)          (4.5)          304.7
 SG&A                350.5        4.6           59.2           286.7
 Operating
  (Loss)/Income      (65.5)     (19.8)         (63.7)           18.0
 Income Tax
  (Benefit)/
  Expense            (27.7)      (7.9)         (27.2)            7.4
 Net (Loss)/
  Income             (35.6)     (11.9)         (36.5)           12.8
 (Loss)/Earnings
   Per Share        $(0.51)    $(0.17)        $(0.52)          $0.18


            

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