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Tiffany Montgomery
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Wall Street worried about PacSun's cash position; third quarter earnings released later today

By Tiffany Montgomery
November 18, 2008 5:54 AM

I'm hearing a lot of anticipation today as PacSun releases earnings later this afternoon.

The stock price of PacSun, the industry's largest customer, has been hit hard in the past month, dropping 64 percent since Oct. 17. It closed at $1.28 Monday.

Most consumer stocks have also suffered, but PacSun has taken an even worse beating. By comparison, Zumiez stock has fallen 35 percent in the past month and Abercrombie & Fitch's has dropped 49 percent.

I've asked Wall Street contacts why the stock has been particularly battered. Here's a summary of what they said.

Liquidity: There is concern about PacSun's cash position. The company ended the second quarter with $1.5 million in cash. While the company has a new secured $150 million revolving line of credit, there is worry about PacSun's financial position if sales continue to erode.

Analysts believe the company needs the $26 million from the sale of its Anaheim distribution center, which is scheduled to close at the end of January. Given the tough credit markets, there is concern the deal will not close.

Information from PacSun about liquidity: The company addressed the liquidity issue in its quarterly report filed with the SEC in August. While economic conditions and retail sales have deteriorated since then, it offers a window into management's thinking on the issue.

PacSun said in the report it anticipates having short term borrowings under its credit facility at the end of the third quarter because of lease termination payments associated with the discontinued Demo concept, share repurchases in the first half of fiscal 2008 and losses from continuing operations.

The company plans to repay the temporary borrowings by the end of fiscal 2008 (January 31). PacSun expects to end the year with $50 million to $60 million in cash.

"We believe that our working capital, cash flows from operations and available credit will be sufficient to meet our operating and capital expenditure requirements for at least the next twelve months," the company said in the report.

I'll post a story later today when PacSun's results are released.

 

 

 


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