MOSS ADAMS CAPITAL: Apparel and foowear market monitor highlights notable deals, stock prices and results.
Details on Industry Insight.
Increased discounting battered PacSun's gross margins in the fourth quarter as the industry's largest customer moved to aggressively unload merchandise.
The company said during its earnings conference call that gross margin as a percentage of sales was 16.1 percent in the fourth quarter vs. 31.8 percent the same period last year.
The company ended the year with inventory per square foot down 30 percent.
CEO Sally Frame Kasaks also provided more detail for the first time about the chain's value stores. (See our previous story about the value stores here.) She said the idea evolved after the company sent footwear to some of its lower volume stores to be liquidated. It found that customers at the lower-tier malls and shopping centers were more price sensitive and responded to discounts. That led the company to begin lowering prices for apparel at those stores as well. Of the company's 932 stores, Sally said 525 are core, or full-priced stores and the rest are outlet and value stores.
That means that 43 percent of PacSun stores are now discount stores - 126 are outlet stores and 281 are value stores.
After switching to a value format, the stores have shown a modest improvement in sales and gross margins. However, the company has no plans to rename the stores.
Other highlights from the call:
Revenue: down 8 percent to $352 million
Net loss: a $27.6 million loss vs. net income of $19.6 million during the same period last year.
Same-store sales: down 10 percent
E-commerce sales: up 35 percent to $18 million
Revenue: down 3.9 percent to $1.2 billion
Net loss: $39.4 million loss vs. income of $45.6 million the same period last year
Same-store sales: down 5 percent
PacSun ended the year with $25 million in cash and no direct borrowings against its line of credit. It will also receive a $25 million tax refund about mid-year because of its losses. The company said it is well prepared to weather a continuing difficult environment.
Apparel sales: up 11 percent
Junior's apparel: up 23 percent, accounting for 51 percent of apparel sales.
Young men's apparel sales: up 1 percent, accounting for 49 percent of apparel sales. Sally said the company has plans to regain its momentum in young men's and grow the business. She seemed very bullish about an improved T-shirt assortment with an art-driven bent.
Accessories: Accounted for 13 percent of total sales. Sally said the company cut accessories too much and expect it to grow to 15 percent of total sales this year. Growing categories will be jewelry, sunglasses, sandals for girls, scarves and to a lesser degree, handbags. For men, hats, sunglasses and belts will grow.
The company cut $50 million from its capital expenditure budget, which now totals $30 million for 2009. PacSun will open three new stores, relocate or expand nine, and refresh three during the year.
In each of the next three years, 100 store leases expire. The company expects to close 35 to 55 stores per year as the leases expire.
The company stressed it has fresh inventory in stores, and it started the year with 85 percent of its inventory less that 90 days old vs. 71 percent at the start of 2008.
Sally said PacSun made the decision to bring in swim and boardshorts later this year because it believed those items were brought in too early in January and February before. But she stressed the company is not exiting that business and currently has the right level of swim and boardshorts at a more appropriate time of year.
The company sold out of its colored denim and said it has a new assortment coming soon that Sally is excited about.
This spring, the company is putting less emphasis on displaying key items and it has broadened its SKUS and fashion assortment.
"They'll be a little less high piles of key items," she said, and as a result she expects the stores will attract a more diverse junior's customer.
Sally highlighted the following:
Eliminating its other chains besides PacSun
Reducing to a single distribution center and enhancing supply chain
Reducing inventory, capital expenditures and SG&A
Growing apparel to 80 percent of total sales, with junior's approximately 50 percent of the total apparel sales
Securing a $150 million credit facility
Ending the year with 25 million in cash and no direct borrowings.
The company expects same-store sales to decline in the low 20s. It anticipates recording a loss of 26 to 31 cents per share.