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ICRX Report: PacSun moving RVCA to all doors

By Andrew Horan
January 14, 2009 12:51 PM

"Rumors of our demise are greatly exaggerated," a hoarse Sally Frame Kasaks said to kick off Pacific Sunwear of California's presentation at the 11th ICR Exchange conference this morning at the St. Regis resort in Dana Point, California.

First, two action sports brands that Kasaks called out during her presentation:

A top long term goal is to build sales of private label and national brands, but also add in more young and emerging brands.

An example: RVCA was in 20 doors in 2008, but will move to all doors this year. "It's turning out to be one of our top brands," Kasaks said.

The DC $39 hoodie promotion vaulted that product into one of PacSun's top sellers within 10 days of its introduction in early December. "It's clear our customers were looking for value," Kasaks said.

She and CFO Michael Henry pointed out these accomplishments and goals:

  • Pacsun.com sales grew 46 percent vs. 2007, Kasaks said. The web portal is "an important opportunity for us for commerce, and for community," Kasaks said. Sales in 2008 were
    $42 million. Those results are on top of $30 million in sales in 2007, which were a 48 percent growth from 2006.
  • PacSun improved its online platform, graphics, product offerings and music. It grew into social network marketing with links to Facebook, MySpace and YouTube.
  • The site is quickly becoming PacSun's primary way to communicate style, trends and company ideas to its customers, Kasaks said. "We're communicating things like the four hottest skinnies for juniors, and V-necks for young men. And the music is changing constantly."

An interesting anecdote Kasaks told: PacSun found a store employee who is also a musician, sponsored his bus tour, and he's now in charge of programming music for the entire company.

Some goals going forward in the near term:

  • Improve profitability by improving product mix. For instance, PacSun left money on the table during holiday by exiting accessories too heavily, Kasaks said.
  • Control inventory even tighter. The stores will run light, though new visibility technologies will keep that from being apparent to shoppers.
  • Preserve liquidity to reducing capital expenditures by $50 million. That means fewer store openings and refreshings.

Another long term goal

  • Return ope rating margins to mid-single-digits in the next 3-5 years, with a longer term goal of double digits. That represents a concession to the difficult retail environment; PacSun had forecast a more aggressive margin growth last year.

Other highlights:

  • A $150 million credit facility backed by inventory and other assets is untouched, and the company expects to start the 2009 fiscal year with a $45 million balance sheet boost that comes from the delta between store depreciation and reduced capital expenditures, Henry said.
  • Total apparel sales were up 40 percent in 2008. Apparel penetration grew to 83 percent - better than the company's 80 percent goal, and up from 71 percent in 2007.
  • Juniors apparel sales grew by $80 million, and 21 comp points, compared to 2007.
  • Private label Bullhead denim was established as strong brand. "We were trend right, with the right fittings and quality and washes. Our compelling 2-for-$55 pricing drove most of our unit sales and margin, and the value message held up well in this last quarter," Kasaks said.
  • Closed demo and 1000 Steps stores
  • Exited shoes. "This was controversial at the time, but to advance our long-term goals, shoes could not be a part of our mix. The margins are just not there," Kasaks said.
  • The mix of juniors to young men hit the 50-50 ratio goal
  • Closed and sold the Anaheim, California, distribution center, and consolidated distribution at the Olathe, Kansas center.




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