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

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

                         Comparable Store Sales Up 3%

                 Reports Second Quarter Non-GAAP EPS of $0.02

ANAHEIM, Calif., Aug. 29, 2013 (GLOBE NEWSWIRE) -- Pacific Sunwear of
California, Inc. (Nasdaq:PSUN) (the "Company"), announced today that net sales
from continuing operations for the second quarter of fiscal 2013 ended August
3, 2013, were $215.2 million versus net sales from continuing operations of
$197.3 million for the second quarter of fiscal 2012 ended July 28, 2012.
Comparable store sales for the second quarter of fiscal 2013 increased 3%. The
Company ended the second quarter of fiscal 2013 with 637 stores.

On a GAAP basis, the Company reported a loss from continuing operations of
$19.2 million, or $(0.28) per diluted share, for the second quarter of fiscal
2013, compared to a loss from continuing operations of $18.0 million, or
$(0.27) per diluted share, for the second quarter of fiscal 2012. The loss
from continuing operations for the Company's second quarter of fiscal 2013
included a non-cash loss of $21.2 million, or $(0.31) per diluted share,
compared to a non-cash loss of $8.2 million, or $(0.12) per diluted share, for
the second 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 loss on the derivative liability
and store closure related charges, and using a normalized annual income tax
rate of approximately 37%, income from continuing operations for the second
quarter of fiscal 2013 was $1.2 million, or $0.02 per diluted share, as
compared to a loss from continuing operations of $6.1 million, or $(0.10) per
diluted share, for the same period a year ago. The 53rd week retail calendar
shift contributed approximately $0.03 per share of the $0.12 per diluted share
improvement compared to last year.

"We are pleased with our strong performance as evidenced by our sixth
consecutive quarter of both positive comparable store sales growth and higher
merchandise margins," said Gary H. Schoenfeld, President and Chief Executive
Officer. "We believe our customers are beginning to recognize and appreciate
our diverse lens toward California lifestyle and our curated assortment of
great brands and distinctive style which together are reestablishing PacSun's
unique identity."

Financial Outlook for Third Fiscal Quarter of 2013

The Company's guidance range for the third quarter of fiscal 2013 contemplates
a non-GAAP loss per diluted share from continuing operations of between
negative $0.09 and negative $0.04 and includes the impact of the 53rd week
retail calendar shift.

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

  *Comparable store sales from negative 1% to plus 3%;
  *An estimated $13 million reduction in revenue, a nearly 300 basis point
    decrease in gross margin, and a corresponding reduction of approximately
    $0.06 per diluted share as a result of the 53rd week retail calendar
    shift;
  *Revenue from $202 million to $209 million;
  *Gross margin rate, including buying, distribution and occupancy, of 25% to
    27%;
  *SG&A expenses in the range of $55 million to $57 million; and
  *Applicable non-GAAP adjustments are tax effected using a normalized annual
    income tax rate of approximately 37%.

The Company's third 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 increases, the fair value of the
derivative liability generally will also increase. For example, the Company's
stock price for the second quarter of fiscal 2013 ended August 3, 2013, was
$4.47 compared to $2.81 for the first quarter of fiscal 2013 ended May 4,
2013, which resulted in a non-cash loss of $21.2 million in the second
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
August 29, 2013, the Company operates 638 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: 33306159. 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 4, 2013. Following the conference
call, at approximately 5:15 p.m. Eastern time, Mr. Schoenfeld will make a live
appearance on the show "Fast Money" on CNBC.

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
Third 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 Second Quarter For the First Half Ended
                               Ended
                              August3,   July28,   August3,    July28,
                               2013        2012       2013         2012
                                                               
Net sales                      $ 215,245   $ 197,291  $ 385,082    $ 359,554
Gross margin                   63,670      54,146     106,374      92,263
SG&A expenses                  58,395      60,287     112,209      116,232
Operating income (loss)        5,275       (6,141)    (5,835)      (23,969)
Loss on derivative liability   21,154      8,219      30,444       1,886
Interest expense, net          3,439       3,454      6,986        6,763
Loss from continuing           (19,318)    (17,814)   (43,265)     (32,618)
operations before income taxes
Income taxes                   (74)        163        160          523
Loss from continuing           (19,244)    (17,977)   (43,425)     (33,141)
operations
Income (loss) from
discontinued operations, net   —           439        —            (20)
of tax
Net loss                       $ (19,244)  $ (17,538) $ (43,425)   $ (33,161)
                                                               
Loss from continuing                                            
operations per share:
Basic and diluted              $ (0.28)    $ (0.27)   $ (0.64)     $ (0.49)
Income (loss) from
discontinued operations per                                     
share:
Basic and diluted              $ —         $ 0.01     $ —          $ —
Net loss per share:                                             
Basic and diluted              $ (0.28)    $ (0.26)   $ (0.64)     $ (0.49)
Weighted-average shares                                         
outstanding:
Basic and diluted              68,464      67,738     68,353       67,662



PACIFIC SUNWEAR OF CALIFORNIA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
                                                              
                                August3, 2013 February2, 2013 July28, 2012
                                                              
ASSETS
Current assets:                                                
Cash and cash equivalents        $26,868      $48,733        $34,830
Restricted cash                  —              —                405
Inventories                      140,324        90,681           144,797
Prepaid expenses                 15,922         12,815           17,165
Other current assets             4,170          2,912            6,366
Total current assets             187,284        155,141          203,563
Property and equipment, net      115,112        124,793          137,440
Other assets                     33,165         33,878           35,130
Total assets                     $335,561     $313,812       $376,133
                                                              
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:                                           
Accounts payable                 $84,986      $49,993        $85,852
Derivative liability             50,526         20,082           21,962
Other current liabilities        42,529         43,559           52,929
Total current liabilities        178,041        113,634          160,743
Deferred lease incentives        13,213         14,401           16,728
Deferred rent                    15,858         16,133           16,517
Long-term debt                   80,332         79,570           74,414
Other liabilities                25,586         25,714           26,201
Total liabilities                313,030        249,452          294,603
Total shareholders' equity       22,531         64,360           81,530
Total liabilities and            $335,561     $313,812       $376,133
shareholders' equity



PACIFIC SUNWEAR OF CALIFORNIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
                                                               
                                                 For the First Half Ended
                                                 August3, 2013 July28, 2012
Cash flows from operating activities:                           
Net loss                                          $ (43,425)     $ (33,161)
Adjustments to reconcile net loss to net cash                   
from operating activities:
Depreciation and amortization                     13,294         17,765
Asset impairment                                  1,431          3,540
Loss on disposal of property and equipment        42             118
Loss on derivative liability                      30,444         1,886
Amortization of debt discount                     1,064          787
Non-cash stock-based compensation                 1,716          1,466
Changes in assets and liabilities:                              
Inventories                                       (49,643)       (56,057)
Accounts payable and other current liabilities    33,131         52,500
Other assets and liabilities                      (5,144)        (2,393)
Net cash used in operating activities             (17,090)       (13,549)
Cash flows from investing activities:                           
Purchases of property and equipment               (4,484)        (9,068)
Restricted cash                                   —              8,188
Proceeds from insurance settlements               —              653
Net cash used in by investing activities          (4,484)        (227)
Cash flows from financing activities:                           
Payments under credit facility borrowings         —              (1,254)
Principal payments under mortgage borrowings      (284)          (265)
Principal payments under capital lease            (240)          (362)
obligations
Proceeds from exercise of stock options           233            181
Net cash used in financing activities             (291)          (1,700)
Net decrease in cash and cash equivalents         (21,865)       (15,476)
Cash and cash equivalents, beginning of period    48,733         50,306
Cash and cash equivalents, end of period          $ 26,868       $ 34,830

                                      

PACIFIC SUNWEAR OF CALIFORNIA, INC.
SELECTED STORE OPERATING DATA

                                August3, 2013      July28, 2012
Stores open at beginning of year 644                 733
Stores opened during the period  3                   2
Stores closed during the period  (10)                (8)
Stores open at end of period     637                 727
                                                   
                                August3, 2013      July28, 2012
                                             Square              Square
                                # of Stores Footage # of Stores Footage
                                             (000s)              (000s)
PacSun Core stores               520         2,046   607         2,351
PacSun Outlet stores             117         474     120         486
Total stores                     637         2,520   727         2,837



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 For the First Half Ended
                               Ended
                              August3,   July28,   August3,    July28,
                               2013        2012       2013         2012
                                                               
GAAP SG&A expenses             $ 58,395    $ 60,287   $ 112,209    $ 116,232
Store closure charges (gains):                                  
Asset impairments              —           28         —            44
Lease terminations             14          —          212          (45)
Non-GAAP SG&A expenses         $ 58,381    $ 60,259   $ 111,997    $ 116,233
                                                               
GAAP loss from continuing      $ (19,244)  $ (17,977) $ (43,425)   $ (33,141)
operations
Store closure charges (gains),                                  
net of tax:
Asset impairments              —           18         —            28
Lease terminations             9           —          134          (28)
Derivative liability           21,154      8,219      30,444       1,886
Valuation allowance            (699)       3,614      4,660        11,613
Non-GAAP income (loss) from    $ 1,220     $ (6,126)  $ (8,187)    $ (19,642)
continuing operations
                                                               
GAAP loss from continuing      $ (0.25)    $ (0.27)   $ (0.64)     $ (0.49)
operations per share
Store closure charges (gains),                                  
net of tax:
Asset impairments              —           —          —            —
Lease terminations             —           —          —            —
Derivative liability           0.28        0.12       0.45         0.03
Valuation allowance            (0.01)      0.05       0.07         0.17
Non-GAAP income (loss) from
continuing operations per      $ 0.02      $ (0.10)   $ (0.12)     $ (0.29)
share
Shares used in calculation^(1) 76,015      67,738     68,353       67,662

^(1) Non-GAAP income from continuing operations per share for the second
quarter of 2013 includes the dilutive effect of stock-based awards and the
Convertible SeriesB Preferred Stock related to the Company's $60 million
senior secured term loan with an affiliate of Golden Gate Capital.

ABOUT NON-GAAP FINANCIAL MEASURES

The accompanying press release dated August 29, 2013, contains non-GAAP
financial measures. These non-GAAP financial measures include non-GAAP SG&A
expenses, non-GAAP income (loss) from continuing operations and non-GAAP
income (loss) from continuing operations per share for the second quarters and
first half of fiscal 2013 and 2012, respectively, and non-GAAP loss from
continuing operations per share guidance for the third 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

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