Pacific Sunwear of California, Inc. (NASDAQ:PSUN) (the “Company”),
announced today that net sales for the third quarter of fiscal 2015
ended October 31, 2015, were $205.9 million versus net sales
of $212.3 million for the third quarter of fiscal 2014 ended
November 1, 2014. Comparable store sales for the third quarter
of fiscal 2015 decreased 3%. The Company ended the third quarter of
fiscal 2015 with 611 stores versus 620 stores a year ago.
On a GAAP basis, the Company reported a net loss of $3.4
million, or $(0.05) per diluted share for the third quarter of
fiscal 2015, compared to a net loss of $0.5 million, or $(0.01) per
diluted share for the third quarter of fiscal 2014. The net loss
for the Company's third quarter of fiscal 2015 included a non-cash
gain of $2.7 million, or $0.04 per diluted share, compared to a
non-cash gain of $4.9 million, or $0.07 per diluted share, for the
third 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, other charges, and assuming a tax benefit of
approximately $2.1 million, the Company would have incurred a net
loss for the third quarter of fiscal 2015 of $3.2 million, or
$(0.05) per diluted share, as compared to a net loss of $2.2
million, or $(0.03) per diluted share, for the same period a year
ago.
“We have been encouraged by improving trends over the past 90
days leading to Q3 results at the high-end of our guidance, an 11%
comp on Black Friday and a 1% comp for November,” said Gary H.
Schoenfeld, President and Chief Executive Officer. “While there is
no shortage of challenges still to overcome, we believe that our
Best Brands, Great Style positioning is creating something
distinctly relevant amidst a very crowded marketplace.”
Financial Outlook for Fourth Fiscal Quarter of
2015
The Company's guidance range for the fourth quarter of fiscal
2015 contemplates a non-GAAP net loss per diluted share of between
$(0.14) and $(0.04), compared to $(0.10) in the fourth quarter of
fiscal 2014.
The forecasted fourth quarter non-GAAP net loss per diluted
share guidance range is based on the following assumptions:
• Comparable store
sales from -3% to 3%;•
Net sales from $223 million to $237 million;•
Gross margin rate,
including buying, distribution and occupancy, of 24% to 26%;•
SG&A expenses in the
range of $62 million to $63 million; and•
Applicable non-GAAP
adjustments are tax effected using a normalized annual income tax
rate.
The Company's fourth 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
December 2, 2015, the Company operates 613 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: 83588954.
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 14,
2016.
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 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 Third Quarter Ended |
|
For the Three Quarters Ended |
| |
October 31, 2015 |
|
November 1, 2014 |
|
October 31, 2015 |
|
November 1, 2014 |
| |
|
|
|
|
|
|
|
| Net sales |
$ |
205,921 |
|
|
$ |
212,292 |
|
|
$ |
568,046 |
|
|
$ |
595,184 |
|
| Gross margin |
51,782 |
|
|
56,683 |
|
|
146,910 |
|
|
162,885 |
|
| SG&A expenses |
53,430 |
|
|
58,020 |
|
|
159,428 |
|
|
170,609 |
|
| Operating loss |
(1,648 |
) |
|
(1,337 |
) |
|
(12,518 |
) |
|
(7,724 |
) |
| Gain on derivative
liability |
(2,718 |
) |
|
(4,881 |
) |
|
(27,516 |
) |
|
(16,540 |
) |
| Interest expense,
net |
4,328 |
|
|
3,867 |
|
|
12,753 |
|
|
11,819 |
|
| Income (loss) before
income taxes |
(3,258 |
) |
|
(323 |
) |
|
2,245 |
|
|
(3,003 |
) |
| Income tax expense |
93 |
|
|
146 |
|
|
749 |
|
|
362 |
|
| Net income (loss) |
$ |
(3,351 |
) |
|
$ |
(469 |
) |
|
$ |
1,496 |
|
|
$ |
(3,365 |
) |
| |
|
|
|
|
|
|
|
| Net income (loss) per
share: |
|
|
|
|
|
|
|
| Basic |
$ |
(0.05 |
) |
|
$ |
(0.01 |
) |
|
$ |
0.02 |
|
|
$ |
(0.05 |
) |
| Diluted |
$ |
(0.05 |
) |
|
$ |
(0.01 |
) |
|
$ |
0.02 |
|
|
$ |
(0.05 |
) |
| Weighted-average shares
outstanding: |
|
|
|
|
|
|
|
| Basic |
70,082 |
|
|
69,235 |
|
|
69,778 |
|
|
69,018 |
|
| Diluted |
70,082 |
|
|
69,235 |
|
|
70,204 |
|
|
69,018 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
| PACIFIC SUNWEAR
OF CALIFORNIA, INC. |
| CONDENSED
CONSOLIDATED BALANCE SHEETS |
| (Unaudited, in
thousands) |
| |
| |
|
October 31, 2015 |
|
January 31, 2015 |
|
November 1, 2014 |
|
|
| ASSETS |
| Current assets: |
|
|
|
|
|
|
| Cash and cash
equivalents |
|
$ |
11,349 |
|
|
$ |
22,588 |
|
|
$ |
12,279 |
|
| Inventories |
|
139,623 |
|
|
81,658 |
|
|
129,157 |
|
| Prepaid expenses |
|
12,460 |
|
|
12,692 |
|
|
15,872 |
|
| Other current
assets |
|
6,740 |
|
|
3,992 |
|
|
6,072 |
|
| Total current assets |
|
170,172 |
|
|
120,930 |
|
|
163,380 |
|
| Property and equipment,
net |
|
87,850 |
|
|
88,751 |
|
|
91,485 |
|
| Other assets |
|
40,831 |
|
|
42,598 |
|
|
42,694 |
|
| Total assets |
|
$ |
298,853 |
|
|
$ |
252,279 |
|
|
$ |
297,559 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| LIABILITIES AND SHAREHOLDERS' (DEFICIT)
EQUITY |
| Current
liabilities: |
| Accounts payable |
|
$ |
69,340 |
|
|
$ |
36,775 |
|
|
$ |
81,637 |
|
| Line of credit |
|
35,000 |
|
|
— |
|
|
— |
|
| Derivative
liability |
|
932 |
|
|
28,448 |
|
|
14,180 |
|
| Other current
liabilities |
|
48,535 |
|
|
48,183 |
|
|
44,783 |
|
| Total current liabilities |
|
153,807 |
|
|
113,406 |
|
|
140,600 |
|
| Deferred lease
incentives |
|
14,260 |
|
|
10,804 |
|
|
11,590 |
|
| Deferred rent |
|
14,537 |
|
|
14,694 |
|
|
14,927 |
|
| Long-term debt |
|
97,023 |
|
|
94,424 |
|
|
88,474 |
|
| Other liabilities |
|
25,429 |
|
|
28,368 |
|
|
25,808 |
|
| Total liabilities |
|
305,056 |
|
|
261,696 |
|
|
281,399 |
|
| Total shareholders'
(deficit) equity |
|
(6,203 |
) |
|
(9,417 |
) |
|
16,160 |
|
| Total liabilities and
shareholders' (deficit) equity |
|
$ |
298,853 |
|
|
$ |
252,279 |
|
|
$ |
297,559 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| PACIFIC SUNWEAR
OF CALIFORNIA, INC. |
| CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (Unaudited, in
thousands) |
| |
| |
For the Three Quarters Ended |
| |
October 31, 2015 |
|
November 1, 2014 |
| Cash flows from
operating activities: |
|
|
|
| Net income (loss) |
$ |
1,496 |
|
|
$ |
(3,365 |
) |
| Adjustments to
reconcile net income (loss) to net cash used in by operating
activities: |
|
|
|
| Depreciation and
amortization |
15,513 |
|
|
18,060 |
|
| Asset impairment |
980 |
|
|
3,119 |
|
| Loss on disposal of
property and equipment |
66 |
|
|
122 |
|
| Gain on derivative
liability |
(27,516 |
) |
|
(16,540 |
) |
| Amortization of debt
discount |
3,024 |
|
|
2,239 |
|
| Non-cash stock-based
compensation |
1,966 |
|
|
1,202 |
|
| Changes in assets and
liabilities: |
|
|
|
| Inventories |
(57,965 |
) |
|
(46,084 |
) |
| Prepaid expenses and other current
assets |
(2,516 |
) |
|
(2,451 |
) |
| Other assets |
480 |
|
|
(1,600 |
) |
| Accounts payable |
32,565 |
|
|
35,603 |
|
| Other current liabilities |
(1,643 |
) |
|
7,130 |
|
| Deferred lease incentives |
3,456 |
|
|
(1,299 |
) |
| Deferred rent |
(157 |
) |
|
(513 |
) |
| Other long-term liabilities |
(2,420 |
) |
|
97 |
|
| Net cash used in operating
activities |
(32,671 |
) |
|
(4,280 |
) |
| Cash flows from
investing activities: |
|
|
|
| Purchases of property, equipment
and intangible assets |
(12,284 |
) |
|
(11,320 |
) |
| Cash flows from
financing activities: |
|
|
|
| Proceeds from credit facility
borrowings |
45,000 |
|
|
— |
|
| Payments under credit facility
borrowings |
(10,000 |
) |
|
— |
|
| Proceeds from mortgage
borrowings |
— |
|
|
618 |
|
| Principal payments under mortgage
borrowings |
(403 |
) |
|
(422 |
) |
| Payments for debt issuance
costs |
— |
|
|
(116 |
) |
| Principal payments under capital
lease obligations |
(632 |
) |
|
(344 |
) |
| Proceeds from issuance of
stock-based compensation |
302 |
|
|
374 |
|
| Statutory withholding payments for
stock-based compensation |
(551 |
) |
|
— |
|
| Net cash provided by financing
activities |
33,716 |
|
|
110 |
|
| Net decrease in cash
and cash equivalents |
(11,239 |
) |
|
(15,490 |
) |
| Cash and cash
equivalents, beginning of period |
22,588 |
|
|
27,769 |
|
| Cash and cash
equivalents, end of period |
$ |
11,349 |
|
|
$ |
12,279 |
|
| |
| PACIFIC SUNWEAR
OF CALIFORNIA, INC. |
| SELECTED STORE
OPERATING DATA |
| |
| |
October 31, 2015 |
|
November 1, 2014 |
| Stores open at
beginning of period |
|
608 |
|
|
|
618 |
|
| Stores opened during
the period |
|
4 |
|
|
|
5 |
|
| Stores closed during
the period |
|
(1 |
) |
|
|
(3 |
) |
| Stores open at end of
period |
|
611 |
|
|
|
620 |
|
| |
October 31, 2015 |
|
November 1, 2014 |
| |
# of Stores |
|
Square Footage(000s) |
|
# of Stores |
|
Square Footage(000s) |
| PacSun Core stores |
484 |
|
1,907 |
|
500 |
|
1,962 |
| PacSun Outlet
stores |
127 |
|
511 |
|
120 |
|
485 |
| Total stores |
611 |
|
2,418 |
|
620 |
|
2,447 |
| |
|
|
|
|
|
|
|
| |
| 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 |
| |
October 31, 2015 |
|
November 1, 2014 |
|
October 31, 2015 |
|
November 1, 2014 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| GAAP net income
(loss) |
$ |
(3,351 |
) |
|
$ |
(469 |
) |
|
$ |
1,496 |
|
|
$ |
(3,365 |
) |
| Store closure charge
(markdown allowance) |
184 |
|
|
171 |
|
|
184 |
|
|
171 |
|
| Termination
benefits |
476 |
|
|
— |
|
|
476 |
|
|
— |
|
| Software
impairment |
— |
|
|
987 |
|
|
— |
|
|
987 |
|
| Derivative
liability |
(2,718 |
) |
|
(4,881 |
) |
|
(27,516 |
) |
|
(16,540 |
) |
| Deferred tax valuation
allowance |
2,233 |
|
|
2,012 |
|
|
9,179 |
|
|
7,301 |
|
| Non-GAAP net loss |
$ |
(3,176 |
) |
|
$ |
(2,180 |
) |
|
$ |
(16,181 |
) |
|
$ |
(11,446 |
) |
| |
|
|
|
|
|
|
|
| GAAP net income (loss)
per share |
$ |
(0.05 |
) |
|
$ |
(0.01 |
) |
|
$ |
0.02 |
|
|
$ |
(0.05 |
) |
| Store closure charge
(markdown allowance) |
— |
|
|
— |
|
|
— |
|
|
— |
|
| Termination
benefits |
0.01 |
|
|
— |
|
|
0.01 |
|
|
— |
|
| Software
impairment |
— |
|
|
0.01 |
|
|
— |
|
|
0.01 |
|
| Derivative
liability |
(0.04 |
) |
|
(0.07 |
) |
|
(0.39 |
) |
|
(0.24 |
) |
| Deferred tax valuation
allowance |
0.03 |
|
|
0.04 |
|
|
0.13 |
|
|
0.11 |
|
| Non-GAAP net loss per
share |
$ |
(0.05 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.23 |
) |
|
$ |
(0.17 |
) |
| Shares used in
calculation |
70,082 |
|
|
69,235 |
|
|
69,778 |
|
|
69,018 |
|
|
|
ABOUT NON-GAAP FINANCIAL MEASURES
The accompanying press release dated December 2, 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 third quarters and first three quarters of fiscal 2015 and
2014, respectively, and non-GAAP net loss per share guidance for
the fourth 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:
| |
| - Store closure charge- Termination benefits-
Software impairment- 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