Warmer prospects seen for teen apparel company
The bitterly cold winter weather has helped to chill sales for teen apparel companies, especially one with a focus on summer and surf clothes and that California lifestyle.
For Pacific Sunwear of California Inc., the freezing temperatures that stretched across the country and deep into the South is putting the icing on a difficult fiscal fourth quarter, which ended Feb. 1.
PacSun, as it is more familiarly known, sells branded and proprietary casual apparel, accessories and footwear for teens and young adults. The items are made both domestically and overseas.
The Anaheim company, which was founded in 1980 and went public in 1993, operates 629 stores, primarily in malls, in all 50 states and Puerto Rico. It also sells online.
Besides offering its own brands, PacSun stores sell clothing, shoes and accessories from such well-known names as Billabong, Brandy Melville, Hurley, Nike, O’Neill, Roxy, Vans, Volcom, and Young and Reckless.
PacSun has struggled through the Great Recession and the slow recovery, posting annual losses every year since 2007. For its fiscal nine months ended Nov. 2, the company pared its losses to $26 million from $32 million for the same period the previous year. Sales climbed 3% to $592 million for the period.
The latest
Recently, Pacific Sunwear warned investors about reduced expectations for its upcoming fourth-quarter earnings release.
“After a strong start to the holiday season in November, the first three weeks of December were significantly below our expectations,” said Chief Executive Gary H. Schoenfeld, 51, in a company statement in January.
“We now expect fourth-quarter comparable store sales to be flat to 1%, compared to last year,” he said.
He and other company executives declined requests for interviews until after the company releases its fourth-quarter and annual financial results. The company has not yet set a date for releasing the information.
Accomplishments
Some analysts think that Pacific Sunwear, of all the teen retailers, will be among the first to regain its footing.
“PSUN is back!” shouted a recent note to investors by B. Riley & Co. analyst Jeff Van Sinderen.
He said that Pacific Sunwear’s “growing girls business” would lead the company out of its doldrums.
“Credit to the girls merchandising team for adding brands like Brandy Melville and Kendall & Kylie,” Van Sinderen said. “The concept is now a cool, relevant branded destination for a slightly older teen girl.”
Challenges
Economic reports for the last several months have been mostly upbeat, and until January, the stock markets have soared. The unemployment rate fell to 6.7% in December, though much of that decline came from an exodus of workers.
But many more young people are still feeling the effects of the recession: The jobless rate for those 16 to 19 years old was 20.2% in December, according to the Bureau of Labor Statistics.
Moreover, what money teenagers do have tended to be spent on smartphones, apps and other electronic gear and programs rather than clothes, analysts said.
“Aside from autos, consumers were hesitant to loosen their purse strings, cutting back on nonessential, discretionary purchases,” Lindsey M. Piegza, chief economist at brokerage Sterne Agee Group Inc., said in a note to clients.
“With income growth of less than 1% and waning momentum in the jobs market, consumption is likely to falter,” she said.
Analyst views
Of 12 analysts covering Pacific Sunwear, known in reports by its PSUN ticker name, one recommended the stock as a strong buy. Three other analysts recommended buying shares, and eight suggested holding the stock.
“We feel that management has brought the PSUN concept back from near death and it is once again among the cooler venues, especially on the juniors side,” said analyst Sinderen, who recommends buying the stock.
A recent investors report from Janney Capital Markets, which is neutral on the stock, noted that PacSun stores operate in the “tough and highly competitive mall environment.”
But the report predicted “sunnier days ahead,” noting that “PSUN is making ongoing progress.”
