Pacific Sunwear Earnings Rise 142%
Teen apparel retailer Pacific Sunwear of California Inc.'s earnings swelled 142% in its fiscal first quarter as girls continued to snap up its surf and skate brands and the company predicted that female shoppers will account for more than half its sales by next year.
The Anaheim-based company earned $8 million, or 16 cents a share, in the quarter ended May 3, compared with $3.3 million, or 7 cents, a year earlier. A consensus of analysts surveyed by Thomson First Call expected earnings of 14 cents.
Sales jumped 22.6% to $198.3 million. Sales at stores open at least a year rose 13.1%.
PacSun’s stock hit a 52-week high of $24.45 on Monday before closing at $24.34, up 96 cents, on Nasdaq. The stock has gained 86% in the last year.
Earnings were released after the market closed.
The company has been one of the shining stars among specialty apparel retailers over the last year, riding the popularity of both surfing and rap music. Young customers in its 700 PacSun stores gravitate to brands such as Quiksilver, Billabong, Roxy and O’Neil, while shoppers at the company’s 109 urban-influenced d.e.m.o. stores have been racking up sales with Ecko, Phat Farm and J.Lo brands.
In both divisions, girls have kept cash registers ringing.
“Two things are driving business: It’s girls at PacSun and girls at d.e.m.o.,” Chief Financial Officer Carl Womack said. D.e.m.o.'s same-store sales soared 36.5% in the quarter.
The girl’s business is particularly lucrative for the retailer because female shoppers tend to stop in to buy one item, say a pair of pants, and while they are at it will grab a top and an accessory. Further, girls’ apparel yields higher margins, analysts say, because they’re often less expensive to stock and because girls generally will pay more for their clothes than boys.
Pacific Sunwear, like retailers such as Abercrombie & Fitch and American Eagle Outfitters, initially began by focusing largely on males. As time went on, these retailers have allowed more floor space for girls’ apparel, said Robert Wilson, an analyst with Tiburon Research Group.
“I think every retailer dreams of being a predominantly women’s retailer,” he said. “It’s higher price points for largely the same goods.”
But paying more attention to girls also increases a retailer’s risks because they are more fickle about fashion, analysts say.
In a conference call Monday, Chief Executive Greg Weaver acknowledged that it is somewhat riskier to sell to girls. However, he added, “I think the risk-reward ratio is a very compelling one.”
Female shoppers will fuel half of the company’s sales this year, and 55% to 58% over the next couple of years, Weaver said. PacSun said it would continue devoting the bulk of its advertising dollars to girls, running ads in teen magazines such as Seventeen, Teen People and Cosmo Girl.
Weaver said the company doesn’t expect to alienate boys with its sharper focus on girls. Stores, for example, won’t be “overly feminine,” Weaver said, or have to add more dressing rooms because boys often don’t try on clothes before they buy.
And while some retailers have been trimming the number of new stores or even reducing square footage, PacSun has boosted its expansion plans.
The company said it still was planning a net gain of 83 new stores this year, a 13% increase in square footage.