Pacific Sunwear Announces Third Quarter Operating Results; Issues Fourth Quarter Guidance

Pacific Sunwear Announces Third Quarter Operating Results; Issues Fourth
Quarter Guidance

ANAHEIM, Calif., Nov. 29, 2012 (GLOBE NEWSWIRE) -- Pacific Sunwear of
California, Inc. (Nasdaq:PSUN) (the "Company"), announced today that net sales
for the third quarter of fiscal 2012 ended October 27, 2012, were $228.4
million versus net sales of $226.8 million for the third quarter of fiscal
2011 ended October 29, 2011. Total Company same-store sales increased 1%
during the period.

On a GAAP basis, the Company reported income from continuing operations of
$0.9 million, or $0.01 per diluted share, for the third quarter of fiscal
2012, compared to a loss from continuing operations of $14.0 million, or
$(0.21) per diluted share, for the third quarter of fiscal 2011. Income from
continuing operations for the Company's third quarter of fiscal 2012 included
a non-cash gain of $5.6 million, or $0.08 per diluted share, related to a
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 store closure related charges of $1.7 million
and the non-cash gain on derivative liability of $5.6 million, 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
2012 of $1.8 million, or $(0.03) per share, as compared to a loss from
continuing operations of $7.1 million, or $(0.11) per share, for the same
period a year ago.

"We continue to see evidence of our turnaround strategies taking hold with our
third straight quarter of positive comparable store sales growth and a 260
basis point improvement in merchandise margins, on an adjusted basis," said
Gary H. Schoenfeld, President and Chief Executive Officer. "After a slow start
to the first few weeks of back-to-school, we performed well during the peak of
the selling season which translated to our first positive sales comp in the
third quarter since 2007 and a more than $10 million improvement in our
pre-tax operating results."

Financial Outlook for Fourth Fiscal Quarter of 2012

The Company's guidance range for the fourth quarter of fiscal 2012 accounts
for a 53^rd fiscal week and contemplates a non-GAAP loss per share from
continuing operations of between negative $0.09 and negative $0.17, compared
to negative $0.20 in the fourth quarter of fiscal 2011.

"With high single-digit comps on Black Friday, we finished the month of
November at a 1% sales comp, similar to the third quarter," Mr. Schoenfeld
said.

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

  *Same-store sales of negative 1% to plus 3%;
  *Revenue from $225 million to $235 million;
  *Gross margin rate, including buying, distribution and occupancy, of 22% to
    25%;
  *SG&A expenses in the range of $63 million to $65 million;
  *A normalized annual income tax rate of approximately 37%; and
  *Ending the period with approximately 645 stores.

The Company's fourth fiscal quarter of 2012 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 2011 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 $15.0 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). The
Company's fourth fiscal quarter of 2012 earnings guidance 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.

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
November 29, 2012, the Company operates 722 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: 70398157. 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 19, 2013.

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 and Mr. Schoenfeld under the heading
"Financial Outlook for Fourth Fiscal Quarter of 2012." 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 28, 2012, 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)
                                                          
                     Third Quarter Ended       Three Quarters Ended
                     October 27,  October 29,  October 27,   October 29, 2011
                      2012         2011         2012
                                                          
Net sales             $            $            $612,563   $599,582
                      228,434 226,786
Gross margin          60,827       55,379       159,612       135,908
SG&A expenses         62,082       68,414       184,855       193,211
Operating loss        (1,255)      (13,035)     (25,243)      (57,303)
Other (income)        (2,314)      1,178        6,336         2,292
expense, net
Income (loss) before  1,059        (14,213)     (31,579)      (59,595)
income taxes
Income tax expense    111          (200)        634           526
(benefit)
Income (loss) from    948          (14,013)     (32,213)      (60,121)
continuing operations
Loss from
discontinued          —            (3,589)      —             (8,209)
operations, net of
tax
Net income (loss)     $948    $(17,602) $(32,213)  $(68,330)
                                                          
Income (loss) from
continuing operations                                      
per share:
Basic                 $0.01   $(0.21) $(0.48) $(0.91)
Diluted               $0.01      $(0.21)    $(0.48)    $(0.91)
Loss from
discontinued                                               
operations per share:
Basic                 $—        $ (0.05)  $—        $(0.12)
Diluted               $—        $ (0.05)  $—        $(0.12)
Net income (loss) per                                      
share:
Basic                 $0.01      $(0.26)     $(0.48)    $(1.03)
Diluted               $0.01      $(0.26)     $(0.48)    $(1.03)
^                    ^           ^           ^            ^
Weighted-average                                           
shares outstanding:
Basic                 67,914       66,855       67,746        66,468
Diluted               71,360       66,855       67,746        66,468




PACIFIC SUNWEAR OF CALIFORNIA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
                                                           
                           October 27, 2012 January 28, 2012 October 29, 2011
                                                           
                           ASSETS                           
Current assets:                                             
Cash and cash equivalents   $23,809         $50,306         $8,280
Restricted cash             305              8,593            —
Inventories                 137,347          88,740           152,249
Prepaid expenses            17,208           15,506           18,405
Other current assets        3,473            6,272            6,620
Total current assets        182,142          169,417          185,554
Property and equipment, net 131,217          149,716          158,157
Other long-term assets      34,625           35,998           31,725
Total assets                $347,984        $355,131        $375,436
                                                           
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:                                        
Accounts payable            $67,336         $38,914         $89,572
Other current liabilities   65,097           68,369           39,133
Total current liabilities   132,433          107,283          128,705
Deferred lease incentives   15,427           17,681           22,483
Deferred rent               16,316           16,602           18,623
Long-term debt              74,645           73,910           28,692
Other long-term liabilities 25,832           26,558           26,554
Total liabilities           264,653          242,034          225,057
Total shareholders' equity  83,331           113,097          150,379
Total liabilities and       $347,984        $355,131        $375,436
shareholders' equity




PACIFIC SUNWEAR OF CALIFORNIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
                                                            
                                            Three Quarters Ended
                                            October 27, 2012 October 29, 2011
Cash flows from operating activities:                        
Net loss                                     $(32,213)    $(68,330)
Depreciation and amortization                25,915           32,758
Asset impairment                             4,073            12,829
Non-cash stock-based compensation            2,114            2,524
Loss on disposal of property and equipment   225              161
Amortization of debt discount                1,163            —
Gain on derivative liability                 (3,672)          —
Changes in operating assets and liabilities:                 
Inventories                                  (48,607)         (56,548)
Accounts payable and other current           30,186           45,183
liabilities
Other assets and liabilities                 (805)            (13,839)
Net cash used in operating activities        (21,621)        (45,262)
                                                            
Cash flows from investing activities:                        
Capital expenditures                         (12,037)         (10,165)
Restricted cash                              8,288            —
Proceeds from insurance settlements          653              300
Net cash used in investing activities        (3,096)          (9,865)
                                                            
Cash flows from financing activities:                        
Payments under credit facility borrowings    (1,254)          —
Principal payments under mortgage borrowings (401)           (375)
Principal payments under capital lease       (511)           (241)
obligations
Proceeds from exercise of stock options      386              313
Net cash used by financing activities        (1,780)          (303)
                                                            
Net decrease in cash and cash equivalents    (26,497)         (55,430)
Cash and cash equivalents, beginning of      50,306          63,710
period
Cash and cash equivalents, end of period     $23,809       $8,280




PACIFIC SUNWEAR OF CALIFORNIA, INC.
SELECTED STORE OPERATING DATA
                                                            
                        October 27, 2012           October 29, 2011
Stores open at beginning 733                        852
of year
Stores opened during the 3                          —
period
Stores closed during the (14)                       (32)
period
Stores open at end of    722                        820
period
                                                            
                        October 27, 2012           October 29, 2011
                        # of Stores Square Footage # of Stores Square Footage
                                     (000s)                     (000s)
PacSun Core stores       601         2,330          699         2,705
PacSun Outlet stores     121         490           121         489
Total stores             722         2,820          820         3,194




PACIFIC SUNWEAR OF CALIFORNIA, INC.
RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES
(Unaudited, in thousands, except per share data)
                                                               
                         Third Quarter Ended          Three Quarters Ended
                         October 27, 2012 October 29, October 27, October 29,
                                           2011        2012        2011
                                                               
GAAP gross margin         $60,827       $55,379  $159,612   $135,908
Store closure charges                                           
(gains):
- Markdown allowances     1,775            —           1,775       —
Non-GAAP gross margin     $62,602         $55,379    $161,387  $135,908
                                                               
GAAP SG&A expenses        $62,082       $68,414    $184,855   $193,211
Store closure charges                                           
(gains):
- Asset impairments       16               2,428       178         2,428
- Lease terminations      (61)             216         130         287
Non-GAAP SG&A expenses    $62,127         $65,770  $184,547   $190,496
                                                               
GAAP income (loss) from   $948        $(14,013)  $(32,213)  $(60,121)
continuing operations 
Store closure charges                                           
(gains), net of tax:
- Asset impairment        10               1,529       112         1,529
- Lease terminations      (38)             136         82          181
- Markdown allowances     1,117            —           1,117       —
Derivative liability      (5,558)          —           (3,672)     —
Valuation allowance       1,709           5,222      13,329     22,180
Non-GAAP loss from        $(1,812)    $(7,126)   $(21,245)  $(36,231)
continuing operations
                                                               
GAAP income (loss) from
continuing operations per $0.01         $(0.21)    $(0.48)    $(0.91)
share
Store closure charges                                           
(gains), net of tax:
- Asset impairment        —                0.02        —           0.02
- Lease terminations      —                —           —           —
- Markdown allowances     0.02             —           0.02        —
Derivative liability      (0.08)           —           (0.05)      —
Valuation allowance       0.02            0.08       0.20       0.33
Non-GAAP loss from
continuing operations per $(0.03)         $(0.11)    $(0.31)    $(0.56)
share
                                                               
Shares used in            67,914          66,855      67,746     66,468
calculation

ABOUT NON-GAAP FINANCIAL MEASURES

The accompanying press release dated November 29, 2012, 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 quarter and
first three quarters of fiscal 2012 and 2011, respectively, and non-GAAP loss
from continuing operations per share guidance for the fourth quarter of fiscal
2012.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
 
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