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

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
 
Press spacebar to pause and continue. Press esc to stop.