Friday, August 21, 2009

PacSun, Zumiez Swing To 2Q Losses On Lower Sales

Teen retailers Pacific Sunwear of California Inc. (PSUN) and Zumiez Inc. (ZUMZ) each swung to a fiscal second-quarter loss, as the companies reported lower same-store sales and falling margins.

PacSun's shares were down 4.8% to $3.80 in after-hours trading, as the company projected a fiscal third-quarter loss on a another steep drop in same-store sales. Zumiez's stock was flat at $12.28. Both stocks have been improving in recent months.

Both retailers have been hurt by lower traffic at shopping malls, as well as their exposure to the struggling West Coast economy, although analysts have noted some improvement in the region.

PacSun, a teen beachwear retailer, posted a loss of $14.2 million, or 22 cents a share, compared with a year-ago profit of $2.8 million, or 4 cents a share. Last month, the company revised its projection, seeing a wider loss of 22 cents to 24 cents a share.

"Clearly, we have a lot of work to do to stem our decline in sales and ultimately return to profitability," said Chief Executive Gary Schoenfeld. PacSun named Schoenfeld to the top role in June after the former CEO, Sally Frame Kasaks, stepped down. The move followed calls for her resignation from a shareholder group. She also stepped down as chairman and was replaced by Peter Starrett.

Revenue decreased 22% to $242.8 million for the quarter ended Aug. 1 as same-store sales slumped 24%. Analysts surveyed by Thomson Reuters expected $239.7 million.

Gross margin slumped to 23.8% from 30.5%.

Looking ahead, PacSun sees a fiscal third-quarter per-share loss of 16 cents to 23 cents on a same-store sales decline of in the high-teens to low twenties. That outlook included an asset impairment charge of about $10 million.

Fellow retailer Zumiez reported a loss of $3.1 million, or 10 cents a share, compared with a year-ago profit of $2.7 million, or 9 cents a share. The latest results included a 3-cent charge related to a lawsuit settlement.

For the quarter ended Aug. 1, net sales fell 7.7% to $85.2 million as same-store sales declined 18.8%.

In May, Zumiez projected a loss of 14 cents to 17 cents on revenue of $78 million to $82 million, below analysts' estimates at the time. Analysts have lowered their view since then, but still see slightly better results, projecting a loss of 12 cents on revenue of $84 million.

Gross margin fell to 28.9% from 32.6%.

Looking ahead, the company projected per-share earnings of 5 cents to 7 cents a share on a same-store sales decline in the mid-to-low teen percentage range. Wall Street expected 7 cents.

"As the second quarter progressed, we experienced improved sales trends throughout the majority of our store base," said Chief Executive Rick Brooks.

The retailer of sports-related fashion has been struggling with a steep decline in same-store sales for the past year as mall traffic slumped amid the recession. Zumiez's higher-priced branded product hasn't been selling well to bargain-minded shoppers, but its effort to provide more value for the back-to-school season is bearing some fruit, according to Caris & Co. The firm noted men's apparel, which makes up a larger share of the company's total business, was the biggest driver in same-store sales, but women's apparel is still weak.

-By John Kell, Dow Jones Newswires; 212-416-2480;

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