Pacific Sunwear Announces Third Quarter Operating Results; Issues Fourth Quarter Guidance - Seventh straight quarter of positive comparable store sales - November comparable store sales up 6% ANAHEIM, Calif., Dec. 5, 2013 (GLOBE NEWSWIRE) -- Pacific Sunwear of California, Inc. (Nasdaq:PSUN) (the "Company"), announced today that net sales from continuing operations for the third quarter of fiscal 2013 ended November 2, 2013, were $206.6 million versus net sales from continuing operations of $215.5 million for the third quarter of fiscal 2012 ended October 27, 2012. The 53rd week retail calendar shift resulted in a decrease in net sales of approximately $11 million for the third quarter of fiscal 2013, compared to the third quarter of fiscal 2012. Comparable store sales for the third quarter of fiscal 2013 increased 1%. The Company ended the third quarter of fiscal 2013 with 635 stores versus 722 stores a year ago. On a GAAP basis, the Company reported income from continuing operations of $17.2 million, or $0.23 per diluted share, for the third quarter of fiscal 2013, compared to income from continuing operations of $3.4 million, or $0.05 per diluted share, for the third quarter of fiscal 2012. Income from continuing operations for the Company's third quarter of fiscal 2013 included a non-cash gain of $23.4 million, or $0.31 per diluted share, compared to a non-cash gain of $5.6 million, or $0.08 per diluted share, for the third 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 gain on the derivative liability and store closure related charges, 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 2013 of $3.6 million, or $(0.05) per diluted share, as compared to a loss from continuing operations of $1.4 million, or $(0.02) per diluted share, for the same period a year ago. "The third quarter marks our seventh consecutive quarter of positive comparable store sales and had there not been the 53^rd week calendar shift, our non-GAAP loss per diluted share would have been break-even compared to the $0.02 loss last year," said Gary H. Schoenfeld, President and Chief Executive Officer. "As we transition into the peak holiday season, we have had a strong start in November with comparable store sales up 6% driven by a number of factors including: strength in our emerging brands and unique product assortment, colder weather, and strong Black Friday performance. Overall, we believe our results continue to validate the unique positioning we are establishing for PacSun as we strive to become the leading specialty retailer for great brands and on-trend fashion and fashion basics." Financial Outlook for Fourth Fiscal Quarter of 2013 The Company's guidance range for the fourth quarter of fiscal 2013 contemplates a non-GAAP loss per diluted share from continuing operations of between negative $0.17 and negative $0.12 and includes the impact of the 53rd week retail calendar shift. The forecasted fourth quarter non-GAAP loss from continuing operations per diluted share guidance range is based on the following assumptions: *Comparable store sales from 1% to 5%; *An estimated $9 million reduction in revenue, a nearly 150 basis point decrease in gross margin, and a corresponding reduction of approximately $0.03 per diluted share as a result of the 53rd week retail calendar shift; *Revenue from $216 million to $225 million; *Gross margin rate, including buying, distribution and occupancy, of 21% to 24%; *SG&A expenses in the range of $61 million to $63 million; and *Applicable non-GAAP adjustments are tax effected using a normalized annual income tax rate of approximately 37%. The Company's fourth 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 decreases, the fair value of the derivative liability generally will also decrease. For example, the Company's stock price for the third quarter of fiscal 2013 ended November 2, 2013, was $2.59 compared to $4.47 for the second quarter of fiscal 2013 ended August 3, 2013, which resulted in a non-cash gain of $23.4 million in the third 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 December 5, 2013, the Company operates 635 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: 16601726. 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 18, 2014. 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 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 Third Quarter Ended For the Three Quarters Ended November2, October27, November2, October27, 2013 2012 2013 2012 Net sales $ 206,578 $ 215,478 $ 591,661 $575,032 Gross margin 51,746 60,502 158,120 152,765 SG&A expenses 53,987 59,356 166,196 175,588 Operating (loss) income (2,241) 1,146 (8,076) (22,823) (Gain) loss on derivative (23,444) (5,558) 7,000 (3,672) liability Interest expense, net 3,566 3,244 10,552 10,008 Income (loss) from continuing operations 17,637 3,460 (25,628) (29,159) before income taxes Income taxes 396 69 556 591 Income (loss) from 17,241 3,391 (26,184) (29,750) continuing operations Loss from discontinued operations, net of tax — (2,443) — (2,463) effects Net income (loss) $ 17,241 $ 948 $ (26,184) $ (32,213) Income (loss) from continuing operations per share: Basic $ 0.25 $ 0.05 $ (0.38) $ (0.44) Diluted $ 0.23 $ 0.05 $ (0.38) $ (0.44) Loss from discontinued operations per share: Basic $ — $ (0.04) $ — $ (0.04) Diluted $ — $ (0.04) $ — $ (0.04) Net income (loss) per share: Basic $ 0.25 $ 0.01 $ (0.38) $ (0.48) Diluted $ 0.23 $ 0.01 $ (0.38) $ (0.48) Weighted-average shares outstanding: Basic 68,568 67,914 68,425 67,746 Diluted 75,515 71,360 68,425 67,746 PACIFIC SUNWEAR OF CALIFORNIA, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands) November2, 2013 February2, 2013 October27, 2012 ASSETS Current assets: Cash and cash equivalents $ 19,927 $ 48,733 $ 23,809 Restricted cash — — 305 Inventories 137,042 90,681 137,347 Prepaid expenses 15,324 12,815 17,208 Other current assets 5,403 2,912 3,473 Total current assets 177,696 155,141 182,142 Property and equipment, net 111,203 124,793 131,217 Other assets 32,763 33,878 34,625 Total assets $ 321,662 $ 313,812 $ 347,984 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 77,806 $ 49,993 $ 67,336 Derivative liability 27,082 20,082 16,404 Other current liabilities 42,124 43,559 48,693 Total current liabilities 147,012 113,634 132,433 Deferred lease incentives 12,317 14,401 15,427 Deferred rent 15,727 16,133 16,316 Long-term debt 80,724 79,570 74,645 Other liabilities 25,619 25,714 25,832 Total liabilities 281,399 249,452 264,653 Total shareholders' equity 40,263 64,360 83,331 Total liabilities and $ 321,662 $ 313,812 $ 347,984 shareholders' equity PACIFIC SUNWEAR OF CALIFORNIA, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands) For the Three Quarters Ended November2, 2013 October27, 2012 Cash flows from operating activities: Net loss $ (26,184) $ (32,213) Adjustments to reconcile net loss to net cash from operating activities: Depreciation and amortization 19,443 25,915 Asset impairment 2,031 4,073 Loss on disposal of property and equipment 60 225 Loss (gain) on derivative liability 7,000 (3,672) Amortization of debt discount 1,611 1,163 Non-cash stock-based compensation 2,200 2,114 Changes in assets and liabilities: Inventories (46,361) (48,607) Accounts payable and other current 25,461 30,186 liabilities Other assets and liabilities (6,371) (805) Net cash used in operating activities (21,110) (21,621) Cash flows from investing activities: Purchases of property and equipment (7,160) (12,037) Restricted cash — 8,288 Proceeds from insurance settlements — 653 Net cash used in investing activities (7,160) (3,096) Cash flows from financing activities: Payments under credit facility borrowings — (1,254) Principal payments under mortgage borrowings (429) (401) Principal payments under capital lease (347) (511) obligations Proceeds from exercise of stock options 240 386 Net cash used in financing activities (536) (1,780) Net decrease in cash and cash equivalents (28,806) (26,497) Cash and cash equivalents, beginning of 48,733 50,306 period Cash and cash equivalents, end of period $ 19,927 $ 23,809 PACIFIC SUNWEAR OF CALIFORNIA, INC. SELECTED STORE OPERATING DATA November2, 2013 October27, 2012 Stores open at beginning of year 644 733 Stores opened during the period 4 3 Stores closed during the period (13) (14) Stores open at end of period 635 722 November2, 2013 October27, 2012 Square Square # of Stores Footage # of Stores Footage (000s) (000s) PacSun Core stores 517 2,019 601 2,330 PacSun Outlet stores 118 477 121 490 Total stores 635 2,496 722 2,820 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 November2, October27, November2, October27, 2013 2012 2013 2012 GAAP Gross Margin $ 51,746 $ 60,502 $ 158,120 $ 152,765 Store closure charges: - Markdown allowance 175 — 175 — Non-GAAP Gross Margin $ 51,921 $ 60,502 $ 158,295 $ 152,765 GAAP SG&A expenses 53,987 59,356 166,196 175,588 Store closure charges (gains): - Asset impairments — 7 — 51 - Lease terminations 47 19 210 (26) Non-GAAP SG&A $ 53,940 $ 59,330 $ 165,986 $ 175,563 expenses GAAP income (loss) from continuing $ 17,241 $ 3,391 $ (26,184) $ (29,750) operations Store closure charges (gains), net of tax: - Markdown allowance 111 — 111 — - Asset impairments — 4 — 32 - Lease terminations 30 12 133 (16) Derivative liability (23,444) (5,558) 7,000 (3,672) Valuation allowance 2,432 787 7,092 12,400 Non-GAAP loss from $ (3,630) $ (1,364) $ (11,848) $ (21,006) continuing operations GAAP income (loss) from continuing $ 0.25 $ 0.05 $ (0.38) $ (0.44) operations per share Store closure charges (gains), net of tax: - Markdown allowance — — — — - Asset impairments — — — — - Lease terminations — — — — Derivative liability (0.34) (0.08) 0.10 (0.05) Valuation allowance 0.04 0.01 0.10 0.18 Non-GAAP loss from continuing operations $ (0.05) $ (0.02) $ (0.18) $ (0.31) per share Shares used in 68,568 67,914 68,425 67,746 calculation ABOUT NON-GAAP FINANCIAL MEASURES The accompanying press release dated December 5, 2013, 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 quarters and first three quarters of fiscal 2013 and 2012, respectively, and non-GAAP loss from continuing operations per share guidance for the fourth 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 Third Quarter Operating Results; Issues Fourth Quarter Guidance
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