Tuesday, November 17, 2009

PacSun disapoints again (PSUN)

OK. I promise my next post will be a positive one.

Pacific Sunwear (PSUN) is off 25% today. To be fair, that's just a dollar twenty five.

Last night the company announced better than expected results for the third quarter - meaning they lost less money than expected. Net loss of $10million would have been 50% worse without a tax benefit. The reason for today's stock drop is the comments on the fourth quarter:

"Through the first 11 weeks of the third quarter, our business performed at the higher end of our internal expectations led by some improving trends in our Young Mens business," stated Gary Schoenfeld, President and Chief Executive Officer. "We've since seen a precipitous decline across both genders during the last two weeks of the third quarter and into the first two weeks of the fourth quarter. Thus, while we still expect an improvement over the fourth quarter last year, we remain intently focused on several key initiatives toward getting this company turned around."

Before today's drop, PSUN shares had gained 180% in 52weeks, as investors anticipated a long-awaited turnaround. It appears the fourth quarter will be dismal, and losses will continue into the future. Actual cash burn is not all that terrible, as big depreciation and non-cash expenses are factored into the P&L. That's likely what keeps the shares afloat. Still, with such weak operating results, the company's ability to finance inventory will be strained. We'll see how this quarter plays out.


Below, I charted quarterly store-level data. The most recent 9months have been pretty dismal, especially as weaker sales expose the high fixed-cost nature of the business:




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