PacSun to close footwear chain
Pacific Sunwear of California Inc. said Wednesday that it would close its fledgling shoe-store division and seek “strategic alternatives” for the urban-themed demo chain.
Analysts applauded the Anaheim company’s decision, saying it was time for the surf and skate apparel seller to focus on its core business, PacSun. Investors liked the idea too; shares jumped 5% in after-hours trading after rising 8 cents to $15.42.
The company said it would hire an investment banker to help evaluate options for the 154 demo stores and close its nine One Thousand Steps shoe boutiques “as soon as is practical.” Together, the two units have generated a pretax operating loss of about $21 million in the first three quarters of the fiscal year excluding previously announced charges, the company said.
The retailer expects to recognize noncash fixed asset impairment charges on demo stores of about $48 million and inventory reserve charges for demo and One Thousand Steps of about $4 million combined in its third quarter. It may later incur additional charges related to lease terminations, severance pay and other obligations.
PacSun has struggled against fierce competition from chains such as Hollister and Zumiez. Last summer, it hired Sally Frame Kasaks as chief executive. She is working to woo back teenagers who are drawn to the types of brands the retailer sells, such as Hurley, Roxy and Volcom, and to pull more girls into its stores.
Analysts said the PacSun chain was improving while 9-year-old demo -- which sells labels such as Baby Phat, Ecko and Enyce -- has continued to slump.
“They’ve tried very hard to turn that business around,” said Jeffrey Van Sinderen, senior analyst at B. Riley & Co. “The urban street-wear apparel segment, not just for them but in general, has been an extremely difficult segment.”
Losing demo, though, would deprive PacSun of a potential growth asset, Needham & Co. analyst Christine Chen said.
“For the long run, they do need a growth vehicle, and demo I think provided that,” she said.
