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 Pacific Sunwear of California, Inc. Logo
Pacific Sunwear Announces Second Quarter Operating Results; Issues Third Quarter Guidance
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