Pacific Sunwear of California, Inc. (NASDAQ:PSUN) (the "Company"),
announced today that net sales for the second quarter of fiscal
2015 ended August 1, 2015, were $195.6 million versus net sales of
$211.7 million for the second quarter of fiscal 2014 ended August
2, 2014. Comparable store sales for the second quarter of fiscal
2015 decreased 6%. The Company ended the second quarter of fiscal
2015 with 608 stores versus 618 stores a year ago.
On a GAAP basis, the Company reported net income of $8.3
million, or $0.12 per diluted share for the second quarter of
fiscal 2015, compared to net income of $7.5 million, or $0.10 per
diluted share for the second quarter of fiscal 2014. The net income
for the Company's second quarter of fiscal 2015 included a non-cash
gain of $15.7 million, or $0.22 per diluted share, compared to a
non-cash gain of $10.4 million, or $0.14 per diluted share, for the
second quarter of fiscal 2014 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
$3.3 million, the Company would have incurred a net loss for the
second quarter of fiscal 2015 of $4.4 million, or $(0.06) per
diluted share, as compared to a net loss of $1.8 million, or
$(0.03) per diluted share, for the same period a year ago.
"Key seasonal categories including shorts, swim and sandals were
down in both genders and were the primary causes of disappointing
results in the second quarter," said Gary H. Schoenfeld, President
and CEO. "As we moved through Labor Day, we are seeing some
improvement in overall trends for the third quarter and we continue
to believe that our distinctive mix of brands and merchandising can
drive further improvement through the back half of this year."
Mr. Schoenfeld continued, "Shifting trends in consumer spending
and shopping patterns necessitate that we further reduce operating
expenses, while at the same time strengthening our customer
connections through a more seamless omni-channel experience. This
has meant some important investments in POS which will roll out in
Spring of 2016 and the enabling of customer loyalty and CRM
initiatives which we just launched, gaining over one million
members in the first month."
"The expense reduction initiative we are implementing is
targeted at eliminating $15 million from our current expenses in
fiscal 2016," said Mr. Schoenfeld. "Approximately one-half of the
savings would come through more streamlined execution in our
stores, and the other half through the restructuring of operations
at our corporate headquarters and the reconfiguration of certain
positions and departments."
In connection with its expense reduction initiative, the Company
announced the promotion of Chris Tedford to Vice President and
Interim Chief Financial Officer and Ernie Sibal to Vice President
of Real Estate, Construction and Strategy. Mr. Tedford has been
with PacSun since 2011 as the Company's Senior Director and
Controller, having previously been Controller at Clean Energy Fuels
Corp. and Multi-Fineline Electronix, Inc., both public companies,
as well as a Senior Manager at Deloitte & Touche LLP. He is a
certified public accountant and has a Masters in Accounting from
the University of Southern California. Mr. Sibal has been with
PacSun since 2008 as the Company's Senior Director of Real Estate,
Construction and Strategy, and has been instrumental in the
restructuring and management of its real estate portfolio. He has a
B.S. in Civil Engineering from Stanford University. As a result of
these promotions, Michael Kaplan has departed as the Company's
Senior Vice President and Chief Financial Officer.
Financial Outlook for Third Fiscal Quarter of
2015
The Company's guidance range for the third quarter of fiscal
2015 contemplates a non-GAAP net loss per diluted share of between
$(0.13) and $(0.05), compared to $(0.03) in the third quarter of
fiscal 2014.
The forecasted third quarter non-GAAP net loss per diluted share
guidance range is based on the following assumptions:
- Comparable store sales from -6% to -3%;
- Net sales from $196 million to $203 million;
- Gross margin rate, including buying, distribution and
occupancy, of 24% to 26%;
- SG&A expenses in the range of $55 million to $56 million;
and
- Applicable non-GAAP adjustments are tax effected using a
normalized annual income tax rate.
The Company's third fiscal quarter of 2015 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.
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 represented 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 September 8,
2015, the Company operates 609 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: 19561999.
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 2,
2015.
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, fifth and sixth paragraphs and the
statements made by the Company under the heading "Financial Outlook
for Third Fiscal Quarter of 2015." 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 January 31, 2015, 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 Second
Quarter Ended |
For the First
Half Ended |
|
August 1, 2015 |
August 2, 2014 |
August 1, 2015 |
August 2, 2014 |
|
|
|
|
|
Net sales |
$ 195,622 |
$ 211,749 |
$ 362,125 |
$ 382,892 |
Gross margin |
50,483 |
61,539 |
95,128 |
106,202 |
SG&A expenses |
53,857 |
60,563 |
105,998 |
112,589 |
Operating income (loss) |
(3,374) |
976 |
(10,870) |
(6,387) |
Gain on derivative liability |
(15,717) |
(10,434) |
(24,798) |
(11,659) |
Interest expense, net |
4,281 |
4,075 |
8,425 |
7,952 |
Income (loss) before income taxes |
8,062 |
7,335 |
5,503 |
(2,680) |
Income tax (benefit) expense |
(275) |
(166) |
656 |
216 |
Net income (loss) |
$ 8,337 |
$ 7,501 |
$ 4,847 |
$ (2,896) |
|
|
|
|
|
Net income (loss) per share: |
|
|
|
|
Basic |
$ 0.12 |
$ 0.11 |
$ 0.07 |
$ (0.04) |
Diluted |
$ 0.12 |
$ 0.10 |
$ 0.07 |
$ (0.04) |
Weighted-average shares outstanding: |
|
|
|
|
Basic |
69,820 |
69,070 |
69,625 |
68,990 |
Diluted |
69,895 |
73,197 |
71,848 |
68,990 |
|
PACIFIC SUNWEAR OF
CALIFORNIA, INC. |
CONDENSED CONSOLIDATED
BALANCE SHEETS |
(Unaudited, in
thousands) |
|
|
August 1, 2015 |
January 31,
2015 |
August 2, 2014 |
ASSETS |
Current assets: |
|
|
|
Cash and cash equivalents |
$ 13,697 |
$ 22,588 |
$ 21,315 |
Inventories |
128,565 |
81,658 |
130,938 |
Prepaid expenses |
13,488 |
12,692 |
16,491 |
Other current assets |
5,669 |
3,992 |
7,195 |
Total current assets |
161,419 |
120,930 |
175,939 |
Property and equipment, net |
86,989 |
88,751 |
93,775 |
Other assets |
41,470 |
42,598 |
44,218 |
Total assets |
$ 289,878 |
$ 252,279 |
$ 313,932 |
LIABILITIES AND
SHAREHOLDERS' (DEFICIT) EQUITY |
Current liabilities: |
|
|
|
Accounts payable |
$ 90,966 |
$ 36,775 |
$ 92,145 |
Derivative liability |
3,650 |
28,448 |
19,061 |
Other current liabilities |
49,500 |
48,183 |
45,448 |
Total current liabilities |
144,116 |
113,406 |
156,654 |
Deferred lease incentives |
12,950 |
10,804 |
12,540 |
Deferred rent |
14,541 |
14,694 |
14,960 |
Long-term debt |
96,148 |
94,424 |
87,853 |
Other liabilities |
25,527 |
28,368 |
25,655 |
Total liabilities |
293,282 |
261,696 |
297,662 |
Total shareholders' (deficit) equity |
(3,404) |
(9,417) |
16,270 |
Total liabilities and shareholders' (deficit)
equity |
$ 289,878 |
$ 252,279 |
$ 313,932 |
|
PACIFIC SUNWEAR OF
CALIFORNIA, INC. |
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS |
(Unaudited, in
thousands) |
|
|
For the First
Half Ended |
|
August 1, 2015 |
August 2, 2014 |
Cash flows from operating activities: |
|
|
Net income (loss) |
$ 4,847 |
$ (2,896) |
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating activities: |
|
|
Depreciation and amortization |
10,353 |
12,092 |
Asset impairment |
602 |
1,663 |
Loss on disposal of property and
equipment |
47 |
106 |
Gain on derivative liability |
(24,798) |
(11,659) |
Amortization of debt discount |
2,005 |
1,482 |
Non-cash stock-based compensation |
1,414 |
837 |
Changes in assets and liabilities: |
|
|
Inventories |
(46,907) |
(47,865) |
Prepaid expenses and other
current assets |
(2,473) |
(4,193) |
Other assets |
336 |
(575) |
Accounts payable |
54,191 |
46,111 |
Other current liabilities |
(5,381) |
6,923 |
Deferred lease incentives |
2,146 |
(349) |
Deferred rent |
(153) |
(481) |
Other long-term
liabilities |
(2,322) |
(91) |
Net cash (used in) provided by
operating activities |
(6,093) |
1,105 |
Cash flows from investing activities: |
|
|
Purchases of property,
equipment and intangible assets |
(6,762) |
(7,919) |
Cash flows from financing activities: |
|
|
Proceeds from credit facility
borrowings |
15,000 |
— |
Payments under credit facility
borrowings |
(10,000) |
— |
Proceeds from mortgage
borrowings |
— |
618 |
Principal payments under
mortgage borrowings |
(267) |
(293) |
Payments for debt issuance
costs |
— |
(116) |
Principal payments under
capital lease obligations |
(520) |
(222) |
Proceeds from issuance of
stock-based compensation |
302 |
373 |
Statutory withholding payments
for stock-based compensation |
(551) |
— |
Net cash provided by financing
activities |
3,964 |
360 |
Net decrease in cash and cash
equivalents |
(8,891) |
(6,454) |
Cash and cash equivalents, beginning of
period |
22,588 |
27,769 |
Cash and cash equivalents, end of period |
$ 13,697 |
$ 21,315 |
|
PACIFIC SUNWEAR OF
CALIFORNIA, INC. |
SELECTED STORE
OPERATING DATA |
|
|
August 1,
2015 |
August 2,
2014 |
Stores open at beginning of period |
605 |
618 |
Stores opened during the period |
5 |
2 |
Stores closed during the period |
(2) |
(2) |
Stores open at end of period |
608 |
618 |
|
|
|
|
August 1,
2015 |
August 2,
2014 |
|
# of Stores |
Square Footage
(000s) |
# of Stores |
Square Footage
(000s) |
PacSun Core stores |
484 |
1,904 |
501 |
1,966 |
PacSun Outlet stores |
124 |
500 |
117 |
473 |
Total stores |
608 |
2,404 |
618 |
2,439 |
|
PACIFIC SUNWEAR OF
CALIFORNIA, INC. |
RECONCILIATION OF
SELECTED GAAP MEASURES TO NON-GAAP MEASURES |
(Unaudited, in
thousands, except per share data) |
|
|
For the Second
Quarter Ended |
For the First
Half Ended |
|
|
August 1, 2015 |
August 2, 2014 |
August 1, 2015 |
August 2, 2014 |
|
|
|
|
|
GAAP net income (loss) |
$ 8,337 |
$ 7,501 |
$ 4,847 |
$ (2,896) |
Derivative liability |
(15,717) |
(10,434) |
(24,798) |
(11,659) |
Deferred tax valuation allowance |
2,996 |
1,091 |
6,946 |
5,289 |
Non-GAAP net loss |
$ (4,384) |
$ (1,842) |
$ (13,005) |
$ (9,266) |
|
|
|
|
|
GAAP net income (loss) per share |
$ 0.12 |
$ 0.11 |
$ 0.07 |
$ (0.04) |
Derivative liability |
(0.22) |
(0.15) |
(0.36) |
(0.17) |
Deferred tax valuation allowance |
0.04 |
0.01 |
0.10 |
0.08 |
Non-GAAP net loss per share |
$ (0.06) |
$ (0.03) |
$ (0.19) |
$ (0.13) |
Shares used in calculation |
69,820 |
69,070 |
69,625 |
68,990 |
ABOUT NON-GAAP FINANCIAL MEASURES
The accompanying press release dated September 8, 2015, contains
non-GAAP financial measures. These non-GAAP financial measures
include non-GAAP net loss and non-GAAP net loss per share for the
second quarters and first half of fiscal 2015 and 2014,
respectively, and non-GAAP net loss per share guidance for the
third quarter of fiscal 2015. 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:
- Derivative liability - Deferred tax
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: Chris Tedford
Interim Chief Financial Officer
(714) 414-4904