Pacific Sunwear Q2 Sales Up Supported By Men’s Business Growth

ANAHEIM, Calif., Aug. 28, 2014 — Pacific Sunwear of California, Inc. (Nasdaq:PSUN) (the “Company”), announced today that net sales from continuing operations for the second quarter of fiscal 2014 ended August 2, 2014, were $211.7 million versus net sales from continuing operations of $210.1 million for the second quarter of fiscal 2013 ended August 3, 2013.

Comparable store sales for the second quarter of fiscal 2014 were 0.3%. The Company ended the second quarter of fiscal 2014 with 618 stores versus 637 stores a year ago. For a complete look at PacSun’s financial report for the second quarter, visit the Pacific Sunwear Investor Relations page.

On a GAAP basis, the Company reported income from continuing operations of $7.5 million, or $0.10 per diluted share for the second quarter of fiscal 2014, compared to a loss from continuing operations of $18.6 million, or $(0.27) per diluted share for the second quarter of fiscal 2013. Income from continuing operations for the Company’s second quarter of fiscal 2014 included a non-cash gain of $10.4 million, or $0.14 per diluted share, compared to a non-cash loss of $21.2 million, or $(0.31) per diluted share, for the second quarter of fiscal 2013 related to the derivative liability that resulted from the issuance of the Convertible Series B Preferred Stock (the “Series B Preferred”) in connection with the term loan financing the Company completed in December 2011.

On a non-GAAP basis, excluding the non-cash gain on the derivative liability, and assuming a tax benefit of approximately $1.3 million, the Company would have incurred a loss from continuing operations for the second quarter of fiscal 2014 of $1.8 million, or $(0.03) per diluted share, as compared to income from continuing operations of $1.6 million, or $0.02 per diluted share, for the same period a year ago.

“As previously indicated, sales trends improved as the quarter progressed led by continued growth in our Men’s business resulting in non-GAAP EPS at the higher end of our guidance,” said Gary H. Schoenfeld, President and Chief Executive Officer. “For Q3, even in the face of a down-trending denim cycle we are encouraged by the positive response to the balance of our initial fall assortments. We continue to believe that our core strategies are attracting new customers and differentiating PacSun in this very competitive market.”

Financial Outlook for Third Fiscal Quarter of 2014

The Company’s guidance range for the third quarter of fiscal 2014 contemplates a non-GAAP loss per diluted share from continuing operations of between $(0.09) and $(0.04), compared to $(0.05) in the third quarter of fiscal 2013.

The forecasted third quarter non-GAAP loss from continuing operations per diluted share guidance range is based on the following assumptions:

Comparable store sales from flat to +3%;
Revenue from $203 million to $208 million;
Gross margin rate, including buying, distribution and occupancy, of 25% to 27%;
SG&A expenses in the range of $54 million to $56 million; andApplicable non-GAAP adjustments are tax effected using a normalized annual income tax rate.

The Company’s third fiscal quarter of 2014 guidance range excludes the quarterly impact of the change in the fair value of the derivative liability due to the inherently variable nature of this financial instrument.

Discontinued Operations

In accordance with applicable accounting literature and consistent with the Company’s financial statement presentation in its fiscal 2013 annual report, the Company has reclassified the results of operations of its closed stores as discontinued operations for all periods presented, as applicable.

Derivative Liability

In fiscal 2011, as a result of the issuance of the Series B Preferred in connection with the Company’s $60 million senior secured term loan financing with an affiliate of Golden Gate Capital, the Company recorded a derivative liability equal to approximately $15 million, which represents the fair value of the Series B Preferred upon issuance. In accordance with applicable U.S. GAAP, the Company has marked this derivative liability to fair value through earnings and will continue to do so on a quarterly basis until the shares of Series B Preferred are either converted into shares of the Company’s common stock or until the conversion rights expire (December 2021).

About Pacific Sunwear of California, Inc.

Pacific Sunwear of California, Inc. and its subsidiaries (collectively, “PacSun” or the “Company”) is a leading specialty retailer rooted in the action sports, fashion and music influences of the California lifestyle. The Company sells a combination of branded and proprietary casual apparel, accessories and footwear designed to appeal to teens and young adults. As of August 28, 2014, the Company operates 618 stores in all 50 states and Puerto Rico. PacSun’s website address is www.pacsun.com.

The Company will be hosting a conference call today at 4:30 p.m. Eastern time to review the results of its second fiscal quarter. 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 and Canada at (855) 859-2056 or internationally at (404) 537-3406; passcode: 47110638. For those unable to listen to the live Web broadcast or utilize the call-in replay, an archived version will be available on the Company’s investor relations website through midnight, December 3, 2014.

About Non-GAAP Financial Measures

This press release and the accompanying tables include non-GAAP financial measures. For a description of these non-GAAP financial measures and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles, please see the accompanying table titled “Reconciliation of Selected GAAP Measures to Non-GAAP Measures” and the section following such table titled “About Non-GAAP Financial Measures.”


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