PacSun: Investors See the Bright Side

Shares of the clothing retailer shot higher Friday amid hopes for strengthening sales

Pacific Sunwear of California (PSUN) has grappled with sluggish sales and profits. But the Anaheim (Calif.) young adult clothing retailer

raised investor hopes on Mar. 16 after promising to deliver better results during the coming months.

Total sales were $458.2 million during the fourth fiscal quarter ended Feb. 3, an increase of 7.8% compared to the same period last year. But sales at stores open more than a year fell 4.3%. "Although fiscal 2006 was disappointing from an earnings standpoint, we have moved aggressively to get the company back on track and positioned for future growth," Interim CEO Sally Frame Kasaks said in a press release late Mar. 15.

Kasaks became Pacific Sunwear's interim CEO in 2006, following Seth Johnson's resignation from the role, according to Morningstar. Critics had blasted Johnson for the company's string of disappointing results.

Now Kasaks and her team have been pushing ahead with steps like slashing inventory in an effort to improve the presentation of the company's stores. The company also plans to close 74 underperforming stores during fiscal 2007. Including around $16.6 million of losses associated with such steps, the company's net income amounted to $9.1 million during the quarter, compared to $47.0 million during the same period last year.

Noting the "aggressive markdowns taken at PacSun stores to position the business for improving inventory turns," Standard & Poor's equity analyst Jason Asaeda said he's expecting the company's sales to strengthen during the fiscal 2008, ending in January. He thinks the store will sharpen its focus on the right brands during the coming months, among other things, and raised his 12-month target price on its stock by $2 to $20 per share. (S&P, like BusinessWeek, is owned by The McGraw-Hill Companies.)

Pacific Sunwear is projecting earnings per diluted share for the first half of fiscal 2007 in the range of 23 to 27 cents and net sales ranging from flat to up by the low single digits. But the company says that most of its earnings will take place during the second fiscal quarter. First Call's survey of 16 analyst estimates for the April quarter had amounted to 15 cents per share.

Investors bid up Pacific Sunwear's stock by 8.1% to $19.66 per share near closing time on the Nasdaq Mar. 16.

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