Pacific Sunwear Thinks on Its Customers’ Feet
Seeking to expand its footprint, Pacific Sunwear of California Inc. said Thursday that it would launch a chain of shoe stores aimed at college-age customers.
The Anaheim-based company said it planned to open eight to 10 stores -- dubbed One Thousand Steps -- in the first half of next year. Eventually, the chain could swell to as many as 800 stores, rivaling the number of locations of its PacSun chain.
Unlike PacSun stores, which target younger teens with apparel and sneakers, the new chain would stock a broader variety of styles for customers ages 18 to 24.
“Footwear has been a very successful part of our assortment in PacSun stores,” Chief Executive Seth Johnson told analysts during a conference call. “We’re targeting older customers because we think there’s an underserved market there.”
The company also reported fiscal second-quarter financial results, posting a 21% year-over-year increase in profit, about in line with analysts’ expectations, and a 14% gain in sales.
Executives revealed little about which brands would be offered in the new stores, which also would carry accessories, but they did say the company intended to stock Kenneth Cole Productions Inc.’s Reaction line and offerings from Steven Madden Ltd.
Pacific Sunwear did not specify where the stores would be, other than to say they would be scattered around the country and some would be in Southern California.
The new stores will reflect the “aesthetic imprint” of the region, targeting shoppers who are “comfortable shopping on La Brea, Robertson and Melrose and the types of boutiques that populate those streets,” said PacSun division President Tom Kennedy, referring to three of Los Angeles’ hot retailing hubs.
Analysts said the new chain’s main competitors would probably be department stores and Journeys, a shoe chain owned by Genesco Inc. of Providence, R.I.
Finding new ways to spur sales, they said, will prove important for the company, given that the core PacSun division is maturing and growth at its urban-themed d.e.m.o. division is expected to slow in a few years.
“Clearly, they’re sending signals to the Street that the growth story isn’t over -- ‘Don’t count us out,’ ” said Elizabeth Pierce, an analyst with Sanders Morris Harris in Los Angeles.
Pacific Sunwear has been one of retailing’s strong performers since 2002. Its sales have been driven to a large degree by the popularity of the Southern California-based surf and skate apparel brands -- such as Hurley, Volcom and Quiksilver -- that are sold in its stores. The company also has done well with its private-label brands.
But the competition has multiplied as other established teen apparel chains have gained strength and smaller companies, such as Zumiez Inc., have opened in more malls.
Most notably, Abercrombie & Fitch Co.’s beach-themed Hollister division also has come on strong and ranked as the most popular teen brand in a poll conducted in the spring by analyst Jeffrey Klinefelter of Piper Jaffray & Co. in Minneapolis.
And in this industry, when somebody wins, somebody else loses, analysts say.
“It really does tend to be a zero-sum game,” Pierce said.
As a result, companies must move quickly to outsmart competitors. One tactic is to reach out to a new age group, as Abercrombie & Fitch -- where Pacific Sunwear’s Johnson previously worked -- has so deftly done. Its namesake stores target college-age customers, while its abercrombie stores go after children 7 to 14 and Hollister focuses on high schoolers. Most recently, the New Albany, Ohio-based retailer launched Ruehl to snag the post-college shopper through about age 35.
Pacific Sunwear, which operates more than 1,000 stores across the country, reached out to a slightly older customer with its d.e.m.o. chain, which sells brands such as Sean John, Ecko and Baby Phat. Girls and young women have become an increasingly important part of its customer base.
PacSun also is testing new products, including luggage and housewares, in some stores and recently introduced a larger store format at the Galleria at Tyler mall in Riverside, which at 9,000 square feet is two or three times the size of a typical PacSun store.
The company’s fiscal second-quarter results reveal its continuing strength.
Net income was $21.1 million, or 28 cents a share, up from $17.5 million, or 22 cents, a year earlier.
Sales in the quarter ended July 30 rose 14% to $309.1 million.
The news boosted Pacific Sunwear shares nearly 3% to $24.50 in after-hours trading. The stock had fallen 29 cents to $23.81 in regular trading before the quarterly results were released.
For the full fiscal year, the company said, it expects 15% to 20% profit growth. Analysts have pegged full-year earnings at $1.62 a share, an increase of 16% from a year earlier.
