- Seventh straight quarter of positive
comparable store sales
- November comparable store sales up
6%
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.
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."
Pacific Sunwear Safe Harbor
This press release contains "forward-looking statements"
including, without limitation, the statements made by Mr.
Schoenfeld in the fourth paragraph and the statements made by the
Company under the heading "Financial Outlook for Fourth Fiscal
Quarter of 2013." In each case, these statements are made pursuant
to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The Company intends that these forward-looking
statements be subject to the safe harbors created thereby. These
statements are not historical facts and involve estimates,
assumptions and uncertainties that could cause actual results to
differ materially from those expressed in such forward-looking
statements. Uncertainties that could adversely affect the Company's
business and results include, among others, the following factors:
increased sourcing and product costs; adverse changes in U.S. and
world economic conditions generally; adverse changes in consumer
spending; changes in consumer demands and preferences; adverse
changes in same-store sales; higher than anticipated markdowns
and/or higher than estimated selling, general and administrative
costs; currency fluctuations; competition from other retailers and
uncertainties generally associated with apparel retailing;
merchandising/fashion risk; lower than expected sales from private
label merchandise; reliance on key personnel; economic impact of
natural disasters, terrorist attacks or war/threat of war;
shortages of supplies and/or contractors as a result of natural
disasters or terrorist acts, which could cause unexpected delays in
store relocations, renovations or expansions; reliance on foreign
sources of production; and other risks outlined in the Company's
filings with the Securities and Exchange Commission ("SEC"),
including but not limited to the Company's Annual Report on Form
10-K for the fiscal year ended February 2, 2013, and subsequent
periodic reports filed with the SEC. Historical results achieved
are not necessarily indicative of future prospects of the Company.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof.
The Company assumes no obligation to update or revise any such
forward-looking statements to reflect events or circumstances that
occur after such statements are made. Nonetheless, the Company
reserves the right to make such updates from time to time by press
release, periodic report or other method of public disclosure
without the need for specific reference to this press release. No
such update shall be deemed to indicate that other statements not
addressed by such update remain correct or create an obligation to
provide any other updates.
| |
|
|
|
|
| PACIFIC SUNWEAR OF
CALIFORNIA, INC. |
| CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS |
| (Unaudited, in
thousands, except per share data) |
| |
|
|
|
|
| |
For the Third
Quarter Ended |
For the Three
Quarters Ended |
| |
November 2,
2013 |
October 27,
2012 |
November 2,
2013 |
October 27,
2012 |
| |
|
|
|
|
| Net sales |
$ 206,578 |
$ 215,478 |
$ 591,661 |
$ 575,032 |
| Gross margin |
51,746 |
60,502 |
158,120 |
152,765 |
| SG&A expenses |
53,987 |
59,356 |
166,196 |
175,588 |
| Operating (loss) income |
(2,241) |
1,146 |
(8,076) |
(22,823) |
| (Gain) loss on derivative liability |
(23,444) |
(5,558) |
7,000 |
(3,672) |
| Interest expense, net |
3,566 |
3,244 |
10,552 |
10,008 |
| Income (loss) from continuing operations
before income taxes |
17,637 |
3,460 |
(25,628) |
(29,159) |
| Income taxes |
396 |
69 |
556 |
591 |
| Income (loss) from continuing operations |
17,241 |
3,391 |
(26,184) |
(29,750) |
| Loss from discontinued operations, net of tax
effects |
— |
(2,443) |
— |
(2,463) |
| Net income (loss) |
$ 17,241 |
$ 948 |
$ (26,184) |
$ (32,213) |
| |
|
|
|
|
| Income (loss) from continuing operations per
share: |
|
|
|
|
| Basic |
$ 0.25 |
$ 0.05 |
$ (0.38) |
$ (0.44) |
| Diluted |
$ 0.23 |
$ 0.05 |
$ (0.38) |
$ (0.44) |
| Loss from discontinued operations per
share: |
|
|
|
|
| Basic |
$ — |
$ (0.04) |
$ — |
$ (0.04) |
| Diluted |
$ — |
$ (0.04) |
$ — |
$ (0.04) |
| Net income (loss) per share: |
|
|
|
|
| Basic |
$ 0.25 |
$ 0.01 |
$ (0.38) |
$ (0.48) |
| Diluted |
$ 0.23 |
$ 0.01 |
$ (0.38) |
$ (0.48) |
| Weighted-average shares outstanding: |
|
|
|
|
| Basic |
68,568 |
67,914 |
68,425 |
67,746 |
| Diluted |
75,515 |
71,360 |
68,425 |
67,746 |
| |
|
|
|
|
| |
|
|
|
| PACIFIC SUNWEAR OF
CALIFORNIA, INC. |
| CONDENSED CONSOLIDATED
BALANCE SHEETS |
| (Unaudited, in
thousands) |
| |
|
|
|
| |
November 2,
2013 |
February 2,
2013 |
October 27,
2012 |
| |
|
|
|
|
ASSETS |
| Current assets: |
|
|
|
| Cash and cash equivalents |
$ 19,927 |
$ 48,733 |
$ 23,809 |
| Restricted cash |
— |
— |
305 |
| Inventories |
137,042 |
90,681 |
137,347 |
| Prepaid expenses |
15,324 |
12,815 |
17,208 |
| Other current assets |
5,403 |
2,912 |
3,473 |
| Total current assets |
177,696 |
155,141 |
182,142 |
| Property and equipment, net |
111,203 |
124,793 |
131,217 |
| Other assets |
32,763 |
33,878 |
34,625 |
| Total assets |
$ 321,662 |
$ 313,812 |
$ 347,984 |
| |
|
|
|
| LIABILITIES
AND SHAREHOLDERS' EQUITY |
| Current liabilities: |
|
|
|
| Accounts payable |
$ 77,806 |
$ 49,993 |
$ 67,336 |
| Derivative liability |
27,082 |
20,082 |
16,404 |
| Other current liabilities |
42,124 |
43,559 |
48,693 |
| Total current liabilities |
147,012 |
113,634 |
132,433 |
| Deferred lease incentives |
12,317 |
14,401 |
15,427 |
| Deferred rent |
15,727 |
16,133 |
16,316 |
| Long-term debt |
80,724 |
79,570 |
74,645 |
| Other liabilities |
25,619 |
25,714 |
25,832 |
| Total liabilities |
281,399 |
249,452 |
264,653 |
| Total shareholders' equity |
40,263 |
64,360 |
83,331 |
| Total liabilities and shareholders'
equity |
$ 321,662 |
$ 313,812 |
$ 347,984 |
| |
|
|
|
| |
|
|
| PACIFIC SUNWEAR OF
CALIFORNIA, INC. |
| CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS |
| (Unaudited, in
thousands) |
| |
|
|
| |
For the Three
Quarters Ended |
| |
November 2,
2013 |
October 27,
2012 |
| Cash flows from operating activities: |
|
|
| Net loss |
$ (26,184) |
$ (32,213) |
| Adjustments to
reconcile net loss to net cash from operating activities: |
|
| Depreciation and amortization |
19,443 |
25,915 |
| Asset impairment |
2,031 |
4,073 |
| Loss on disposal of property and
equipment |
60 |
225 |
| Loss (gain) on derivative liability |
7,000 |
(3,672) |
| Amortization of debt discount |
1,611 |
1,163 |
| Non-cash stock-based compensation |
2,200 |
2,114 |
| Changes in assets and liabilities: |
|
|
| Inventories |
(46,361) |
(48,607) |
| Accounts payable and other current
liabilities |
25,461 |
30,186 |
| Other assets and liabilities |
(6,371) |
(805) |
| Net cash used in operating activities |
(21,110) |
(21,621) |
| Cash flows from investing activities: |
|
|
| Purchases of property and equipment |
(7,160) |
(12,037) |
| Restricted cash |
— |
8,288 |
| Proceeds from insurance settlements |
— |
653 |
| Net cash used in investing activities |
(7,160) |
(3,096) |
| Cash flows from financing activities: |
|
|
| Payments under credit facility
borrowings |
— |
(1,254) |
| Principal payments under mortgage
borrowings |
(429) |
(401) |
| Principal payments under capital lease
obligations |
(347) |
(511) |
| Proceeds from exercise of stock options |
240 |
386 |
| Net cash used in financing activities |
(536) |
(1,780) |
| Net decrease in cash and cash
equivalents |
(28,806) |
(26,497) |
| Cash and cash equivalents, beginning of
period |
48,733 |
50,306 |
| Cash and cash equivalents, end of period |
$ 19,927 |
$ 23,809 |
| |
|
|
| |
|
|
|
|
| PACIFIC SUNWEAR OF
CALIFORNIA, INC. |
| SELECTED STORE
OPERATING DATA |
| |
|
|
|
|
| |
November 2,
2013 |
October 27,
2012 |
| Stores open at beginning of year |
644 |
733 |
| Stores opened during the period |
4 |
3 |
| Stores closed during the period |
(13) |
(14) |
| Stores open at end of period |
635 |
722 |
| |
|
|
|
|
| |
November 2,
2013 |
October 27,
2012 |
| |
# of Stores |
Square Footage
(000s) |
# of Stores |
Square Footage
(000s) |
| PacSun Core stores |
517 |
2,019 |
601 |
2,330 |
| PacSun Outlet stores |
118 |
477 |
121 |
490 |
| Total stores |
635 |
2,496 |
722 |
2,820 |
| |
|
|
|
|
| |
|
|
|
|
| PACIFIC SUNWEAR OF
CALIFORNIA, INC. |
| RECONCILIATION OF
SELECTED GAAP MEASURES TO NON-GAAP MEASURES |
| (Unaudited, in
thousands, except per share data) |
| |
|
|
|
|
| |
For the Third
Quarter Ended |
For the Three
Quarters Ended |
| |
November 2,
2013 |
October 27,
2012 |
November 2,
2013 |
October 27,
2012 |
| |
|
|
|
|
| GAAP Gross Margin |
$ 51,746 |
$ 60,502 |
$ 158,120 |
$ 152,765 |
| Store closure charges: |
|
|
|
|
| - Markdown allowance |
175 |
— |
175 |
— |
| Non-GAAP Gross Margin |
$ 51,921 |
$ 60,502 |
$ 158,295 |
$ 152,765 |
| |
|
|
|
|
| GAAP SG&A expenses |
53,987 |
59,356 |
166,196 |
175,588 |
| Store closure charges (gains): |
|
|
|
|
| - Asset impairments |
— |
7 |
— |
51 |
| - Lease terminations |
47 |
19 |
210 |
(26) |
| Non-GAAP SG&A expenses |
$ 53,940 |
$ 59,330 |
$ 165,986 |
$ 175,563 |
| |
|
|
|
|
| GAAP income (loss) from continuing
operations |
$ 17,241 |
$ 3,391 |
$ (26,184) |
$ (29,750) |
| Store closure charges (gains), net of
tax: |
|
|
|
|
| - Markdown allowance |
111 |
— |
111 |
— |
| - Asset impairments |
— |
4 |
— |
32 |
| - Lease terminations |
30 |
12 |
133 |
(16) |
| Derivative liability |
(23,444) |
(5,558) |
7,000 |
(3,672) |
| Valuation allowance |
2,432 |
787 |
7,092 |
12,400 |
| Non-GAAP loss from continuing operations |
$ (3,630) |
$ (1,364) |
$ (11,848) |
$ (21,006) |
| |
|
|
|
|
| GAAP income (loss) from continuing operations
per share |
$ 0.25 |
$ 0.05 |
$ (0.38) |
$ (0.44) |
| Store closure charges (gains), net of
tax: |
|
|
|
|
| - Markdown allowance |
— |
— |
— |
— |
| - Asset impairments |
— |
— |
— |
— |
| - Lease terminations |
— |
— |
— |
— |
| Derivative liability |
(0.34) |
(0.08) |
0.10 |
(0.05) |
| Valuation allowance |
0.04 |
0.01 |
0.10 |
0.18 |
| Non-GAAP loss from continuing operations per
share |
$ (0.05) |
$ (0.02) |
$ (0.18) |
$ (0.31) |
| Shares used in calculation |
68,568 |
67,914 |
68,425 |
67,746 |
| |
|
|
|
|
ABOUT NON-GAAP FINANCIAL MEASURES
The accompanying press release dated December 5, 2013, contains
non-GAAP financial measures. These non-GAAP financial measures
include non-GAAP gross margin, non-GAAP SG&A expenses, non-GAAP
loss from continuing operations and non-GAAP loss from continuing
operations per share for the third quarters and first three
quarters of fiscal 2013 and 2012, respectively, and non-GAAP loss
from continuing operations per share guidance for the fourth
quarter of fiscal 2013. Non-GAAP financial measures should not be
considered as a substitute for, or superior to, measures of
financial performance prepared in accordance with GAAP. These
non-GAAP financial measures do not reflect a comprehensive system
of accounting, differ from GAAP measures with the same names and
may differ from non-GAAP financial measures with the same or
similar names that are used by other companies. The Company
computes non-GAAP financial measures using the same consistent
method from quarter to quarter and year to year. The Company may
consider whether other significant items that arise in the future
should be excluded from the non-GAAP financial measures. The
Company has excluded the following items from all of its non-GAAP
financial measures:
- Store closure charges (gains)
- Derivative liability
- Valuation allowance
The Company believes that these non-GAAP financial measures
provide meaningful supplemental information regarding the Company's
operating results primarily because they exclude amounts that are
not considered part of ongoing operating results when planning and
forecasting and when assessing the performance of the organization,
individual operating segments or its senior management. In
addition, the Company believes that non-GAAP financial information
is used by analysts and others in the investment community to
analyze the Company's historical results and in providing estimates
of future performance and that failure to report these non-GAAP
measures, could result in confusion among analysts and others and
create a misplaced perception that the Company's results have
underperformed or exceeded expectations.
CONTACT: Michael W. Kaplan
Chief Financial Officer
(714) 414-4003