Retail news : Pacific Sunwear November Comparable Store Sales up 6%

ANAHEIM, Calif., Dec. 5, 2013 — Pacific Sunwear of California, Inc. (Nasdaq:PSUN) (the “Company”), announced today that net sales from continuing operations for the third quarter of fiscal 2013 ended November 2, 2013, were $206.6 million versus net sales from continuing operations of $215.5 million for the third quarter of fiscal 2012 ended October 27, 2012.

The 53rd week retail calendar shift resulted in a decrease in net sales of approximately $11 million for the third quarter of fiscal 2013, compared to the third quarter of fiscal 2012. Comparable store sales for the third quarter of fiscal 2013 increased 1%. The Company ended the third quarter of fiscal 2013 with 635 stores versus 722 stores a year ago.

On a GAAP basis, the Company reported income from continuing operations of $17.2 million, or $0.23 per diluted share, for the third quarter of fiscal 2013, compared to income from continuing operations of $3.4 million, or $0.05 per diluted share, for the third quarter of fiscal 2012. Income from continuing operations for the Company’s third quarter of fiscal 2013 included a non-cash gain of $23.4 million, or $0.31 per diluted share, compared to a non-cash gain of $5.6 million, or $0.08 per diluted share, for the third quarter of fiscal 2012 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 store closure related charges, and using a normalized annual income tax rate of approximately 37%, the Company would have incurred a loss from continuing operations for the third quarter of fiscal 2013 of $3.6 million, or $(0.05) per diluted share, as compared to a loss from continuing operations of $1.4 million, or $(0.02) per diluted share, for the same period a year ago.

“The third quarter marks our seventh consecutive quarter of positive comparable store sales and had there not been the 53rd week calendar shift, our non-GAAP loss per diluted share would have been break-even compared to the $0.02 loss last year,” said Gary H. Schoenfeld, President and Chief Executive Officer. “As we transition into the peak holiday season, we have had a strong start in November with comparable store sales up 6% driven by a number of factors including: strength in our emerging brands and unique product assortment, colder weather, and strong Black Friday performance. Overall, we believe our results continue to validate the unique positioning we are establishing for PacSun as we strive to become the leading specialty retailer for great brands and on-trend fashion and fashion basics.”

Financial Outlook for Fourth Fiscal Quarter of 2013

The Company’s guidance range for the fourth quarter of fiscal 2013 contemplates a non-GAAP loss per diluted share from continuing operations of between negative $0.17 and negative $0.12 and includes the impact of the 53rd week retail calendar shift.

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

Comparable store sales from 1% to 5%;

An estimated $9 million reduction in revenue, a nearly 150 basis point decrease in gross margin, and a corresponding reduction of approximately $0.03 per diluted share as a result of the 53rd week retail calendar shift;

Revenue from $216 million to $225 million;

Gross margin rate, including buying, distribution and occupancy, of 21% to 24%;

SG&A expenses in the range of $61 million to $63 million; and Applicable non-GAAP adjustments are tax effected using a normalized annual income tax rate of approximately 37%.

The Company’s fourth fiscal quarter of 2013 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 2012 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). A key driver used in determining the fair value of the derivative liability each quarter is the Company’s stock price. As the stock price decreases, the fair value of the derivative liability generally will also decrease.

For example, the Company’s stock price for the third quarter of fiscal 2013 ended November 2, 2013, was $2.59 compared to $4.47 for the second quarter of fiscal 2013 ended August 3, 2013, which resulted in a non-cash gain of $23.4 million in the third quarter.

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 December 5, 2013, the Company operates 635 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 third 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: 16601726. 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, March 18, 2014.

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