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Pacific Sunwear Announces Fourth Quarter Operating Results; Issues First Quarter Guidance

- Eighth straight quarter of positive comparable store sales

- Comparable store sales up 2%

ANAHEIM, Calif., March 18, 2014 (GLOBE NEWSWIRE) -- Pacific Sunwear of California, Inc. (Nasdaq:PSUN) (the "Company"), announced today that net sales from continuing operations for the fourth quarter of fiscal 2013 ended February 1, 2014, were $218.6 million versus net sales from continuing operations of $222.8 million for the fourth quarter of fiscal 2012 ended February 2, 2013. Comparable store sales for the fourth quarter of fiscal 2013 increased 2%. The 53rd week in fiscal 2012 caused a decrease in net sales of approximately $9 million for the fourth quarter of fiscal 2013, compared to the fourth quarter last year. The Company ended the fourth quarter of fiscal 2013 with 618 stores versus 644 stores a year ago.

"We continue to be encouraged by our positive momentum within a challenging retail environment throughout the year, marked by eight straight quarters of positive comparable store sales, sustained gross margins, and reduced operating costs, all contributing to a significant improvement in our operating performance compared to fiscal 2012," said Gary H. Schoenfeld, President and Chief Executive Officer. "Looking ahead to fiscal 2014, our key priorities include showcasing our premium brand portfolio through curated assortments, managing inventory with on-trend fashion and speed to market, and continuing to elevate both our in-store and digital experience. Through our Golden State of Mind brand identity, we continually strive to deliver the creativity, diversity and optimism that is quintessentially California and unique to PacSun across all facets of our business."

Fourth Quarter Results

On a GAAP basis, the Company reported a loss from continuing operations of $22.0 million, or $(0.32) per diluted share, for the fourth quarter of fiscal 2013, compared to a loss from continuing operations of $22.2 million, or $(0.32) per diluted share, for the fourth quarter of fiscal 2012. The loss from continuing operations for the Company's fourth quarter of fiscal 2013 included a non-cash loss of $3.6 million, or $0.05 per diluted share, compared to a non-cash loss of $3.7 million, or $0.05 per diluted share, for the fourth quarter of fiscal 2012, related to the derivative liability that resulted from the issuance of Convertible Series B Preferred Stock (the "Series B Preferred") in connection with the term loan financing the Company completed in December 2011. The Company's operating loss for the fourth quarter of fiscal 2013 was $14.6 million, compared to $15.0 million for the same period a year ago.

On a non-GAAP basis, excluding the non-cash loss on the derivative liability, and assuming a tax benefit of approximately $6.3 million, the Company would have incurred a loss from continuing operations for the fourth quarter of fiscal 2013 of $11.8 million, or $(0.17) per diluted share, as compared to a loss from continuing operations of $11.6 million, or $(0.17) per diluted share, for the same period a year ago. Adjusting for the 53rd week retail calendar shift, the Company would have incurred a non-GAAP loss from continuing operations of $0.03 better than the same period a year ago.

Full Year Results

Total net sales from continuing operations for fiscal 2013 were $797.8 million versus net sales from continuing operations of $784.7 million for fiscal 2012. Comparable store sales increased 2% during fiscal 2013.

On a GAAP basis, the Company reported a loss from continuing operations of $47.0 million, or $(0.69) per diluted share, for the 2013 fiscal year, compared to a loss from continuing operations of $52.6 million, or $(0.78) per diluted share, for the 2012 fiscal year. The Company's operating loss for fiscal 2013 was $21.4 million, as compared to a fiscal 2012 operating loss of $38.4 million.

On a non-GAAP basis, excluding the non-cash loss on derivative liability, and assuming a tax benefit of approximately $12.5 million, the Company would have incurred a loss from continuing operations for fiscal 2013 of $23.1 million, or $(0.34) per diluted share, as compared to a loss from continuing operations of $33.0 million, or $(0.49) per diluted share, for the same period a year ago.

Financial Outlook for First Quarter of Fiscal 2014

The Company's guidance range for the first quarter of fiscal 2014 contemplates a non-GAAP loss per diluted share from continuing operations of between negative $0.17 and negative $0.12, compared to negative $0.14 in the first quarter of fiscal 2013.

The forecasted first quarter non-GAAP loss from continuing operations per diluted share guidance range is based on the following assumptions:

  • Comparable store sales from 1% to 4%;
  • Revenue from $169 million to $174 million;
  • Gross margin rate, including buying, distribution and occupancy, of 25% to 27%;
  • SG&A expenses in the range of $54 million to $55 million; and
  • Applicable non-GAAP adjustments are tax effected using a normalized annual income tax rate.

The Company's first quarter of fiscal 2014 guidance range excludes the quarterly impact of the change in the fair value of the derivative liability due to the inherently variable nature of this financial instrument.

Discontinued Operations

In accordance with applicable accounting literature and consistent with the Company's financial statement presentation in its fiscal 2012 annual report, the Company has reclassified the results of operations of its closed stores as discontinued operations for all periods presented, as applicable.

Derivative Liability

In fiscal 2011, as a result of the issuance of the Series B Preferred in connection with the Company's $60 million senior secured term loan financing with an affiliate of Golden Gate Capital, the Company recorded a derivative liability equal to approximately $15 million, which represents the fair value of the Series B Preferred upon issuance. In accordance with applicable U.S. GAAP, the Company has marked this derivative liability to fair value through earnings and will continue to do so on a quarterly basis until the shares of Series B Preferred are either converted into shares of the Company's common stock or until the conversion rights expire (December 2021).

About Pacific Sunwear of California, Inc.

Pacific Sunwear of California, Inc. and its subsidiaries (collectively, "PacSun" or the "Company") is a leading specialty retailer rooted in the action sports, fashion and music influences of the California lifestyle. The Company sells a combination of branded and proprietary casual apparel, accessories and footwear designed to appeal to teens and young adults. As of March 18, 2014, the Company operates 617 stores in all 50 states and Puerto Rico. PacSun's website address is www.pacsun.com.

The Company will be hosting a conference call today at 4:30 p.m. Eastern time to review the results of its fourth fiscal quarter. A telephonic replay of the conference call will be available, beginning approximately two hours following the call, for one week and can be accessed in the United States and Canada at (855) 859-2056 or internationally at (404) 537-3406; passcode: 8519739. For those unable to listen to the live Web broadcast or utilize the call-in replay, an archived version will be available on the Company's investor relations website through midnight, May 28, 2014.

About Non-GAAP Financial Measures

This press release and the accompanying tables include non-GAAP financial measures. For a description of these non-GAAP financial measures and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles, please see the accompanying table titled "Reconciliation of Selected GAAP Measures to Non-GAAP Measures" and the section following such table titled "About Non-GAAP Financial Measures."

Pacific Sunwear Safe Harbor

This press release contains "forward-looking statements" including, without limitation, the statements made by Mr. Schoenfeld in the second paragraph and the statements made by the Company under the heading "Financial Outlook for First Quarter of Fiscal 2014." In each case, these statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company intends that these forward-looking statements be subject to the safe harbors created thereby. These statements are not historical facts and involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Uncertainties that could adversely affect the Company's business and results include, among others, the following factors: increased sourcing and product costs; adverse changes in U.S. and world economic conditions generally; adverse changes in consumer spending; changes in consumer demands and preferences; adverse changes in same-store sales; higher than anticipated markdowns and/or higher than estimated selling, general and administrative costs; currency fluctuations; competition from other retailers and uncertainties generally associated with apparel retailing; merchandising/fashion risk; lower than expected sales from private label merchandise; reliance on key personnel; economic impact of natural disasters, terrorist attacks or war/threat of war; shortages of supplies and/or contractors as a result of natural disasters or terrorist acts, which could cause unexpected delays in store relocations, renovations or expansions; reliance on foreign sources of production; and other risks outlined in the Company's filings with the Securities and Exchange Commission ("SEC"), including but not limited to the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 2013, and subsequent periodic reports filed with the SEC. Historical results achieved are not necessarily indicative of future prospects of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company assumes no obligation to update or revise any such forward-looking statements to reflect events or circumstances that occur after such statements are made. Nonetheless, the Company reserves the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this press release. No such update shall be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any other updates.

PACIFIC SUNWEAR OF CALIFORNIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
         
  For the Fourth Quarter Ended For the Fiscal Year Ended
  February 1, February 2, February 1, February 2,
  2014 2013 (1) 2014 2013 (1)
         
Net sales  $ 218,591  $ 222,829  $ 797,792  $ 784,745
Gross margin 43,704 47,146 199,244 196,346
SG&A expenses 58,260 62,120 220,677 234,744
Operating loss (14,556) (14,974) (21,433) (38,398)
Loss on derivative liability 3,638 3,678 10,638 6
Interest expense, net 3,556 3,336 14,108 13,344
Loss from continuing operations before income taxes (21,750) (21,988) (46,179) (51,748)
Income taxes 283 232 797 834
Loss from continuing operations (22,033) (22,220) (46,976) (52,582)
(Loss) income from discontinued operations, net of tax effects (504) 2,359 (1,745) 508
Net loss $ (22,537) $ (19,861) $ (48,721) $ (52,074)
         
Loss from continuing operations per share:        
Basic and diluted $ (0.32) $ (0.32) $ (0.69) $ (0.78)
(Loss) income from discontinued operations per share:        
Basic and diluted $ (0.01)  $ 0.03 $ (0.02)  $ 0.01
Net loss per share:        
Basic and diluted $ (0.33) $ (0.29) $ (0.71) $ (0.77)
Weighted-average shares outstanding:        
Basic and diluted 68,586 68,005 68,465 67,815
         
(1) Fiscal 2012 fourth quarter and full-year results include a 53rd week.
         
         
PACIFIC SUNWEAR OF CALIFORNIA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
     
  February 1, 2014 February 2, 2013
     
ASSETS
Current assets:    
Cash and cash equivalents  $ 27,769  $ 48,733
Inventories 83,073 90,681
Prepaid expenses 13,404 12,815
Other current assets 6,089 2,912
 Total current assets 130,335 155,141
Property and equipment, net 96,797 110,732
Other assets 45,507 47,939
Total assets  $ 272,639  $ 313,812
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:    
Accounts payable  $ 46,034  $ 49,993
Derivative liability 30,720 20,082
Other current liabilities 37,286 43,559
 Total current liabilities 114,040 113,634
Deferred lease incentives 12,889 14,401
Deferred rent 15,440 16,133
Long-term debt 86,075 79,570
Other liabilities 26,046 25,714
Total liabilities 254,490 249,452
Total shareholders' equity 18,149 64,360
Total liabilities and shareholders' equity  $ 272,639  $ 313,812
     
     
PACIFIC SUNWEAR OF CALIFORNIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
     
  For the Fiscal Year Ended
  February 1, 2014 February 2, 2013
Cash flows from operating activities:    
Net loss $ (48,721) $ (52,074)
Adjustments to reconcile net loss to net cash from operating activities:    
Depreciation and amortization 25,511 33,637
Asset impairment 3,204 5,341
Loss on disposal of property and equipment 150 268
Loss on derivative liability 10,638 6
Amortization of debt discount 2,164 1,548
Non-cash stock-based compensation 2,643 2,836
Gain on lease terminations (209) (268)
Changes in assets and liabilities:    
Inventories 7,608 (1,941)
Accounts payable and other current liabilities (11,175) 8,732
Other assets and liabilities 463 8,359
Net cash (used in) provided by operating activities (7,724) 6,444
Cash flows from investing activities:    
Purchases of property, equipment, and intangible assets (12,337) (15,393)
Restricted cash 8,593
Proceeds from insurance settlements 653
Net cash used in investing activities (12,337) (6,147)
Cash flows from financing activities:    
Payments under credit facility borrowings (1,254)
Principal payments under mortgage borrowings (576) (540)
Principal payments under capital lease obligations (569) (636)
Proceeds from exercise of stock options 242 560
Net cash used in financing activities (903) (1,870)
Net decrease in cash and cash equivalents (20,964) (1,573)
Cash and cash equivalents, beginning of period 48,733 50,306
Cash and cash equivalents, end of period  $ 27,769  $ 48,733
     
     
PACIFIC SUNWEAR OF CALIFORNIA, INC.
SELECTED STORE OPERATING DATA
             
  February 1, 2014 February 2, 2013
Stores open at beginning of year 644 733
Stores opened during the period 4 3
Stores closed during the period (30) (92)
Stores open at end of period 618 644
     
  February 1, 2014 February 2, 2013
      Square      Square 
      Footage     Footage
  # of Stores   (000s) # of Stores   (000s)
PacSun Core stores 502   1,965 528   2,066
PacSun Outlet stores 116   467 116   471
Total stores 618   2,432 644   2,537
             
             
PACIFIC SUNWEAR OF CALIFORNIA, INC.
RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES
(Unaudited, in thousands, except per share data)
         
  For the Fourth Quarter Ended For the Fiscal Year Ended
  February 1, February 2, February 1, February 2,
  2014 2013 (1) 2014 2013 (1)
         
GAAP loss from continuing operations $ (22,033) $ (22,220) $ (46,976) $ (52,582)
 Derivative liability 3,638 3,678 10,638 6
 Deferred tax valuation allowance 6,624 6,917 13,271 19,557
Non-GAAP loss from continuing operations $ (11,771) $ (11,625) $ (23,067) $ (33,019)
         
GAAP loss from continuing operations per share $ (0.32) $ (0.32) $ (0.69) $ (0.78)
 Derivative liability 0.05 0.05 0.16
 Deferred tax valuation allowance 0.10 0.10 0.19 0.29
Non-GAAP loss from continuing operations per share $ (0.17) $ (0.17) $ (0.34) $ (0.49)
Shares used in calculation 68,586 68,005 68,465 67,815
         
(1) Fiscal 2012 fourth quarter and full-year results include a 53rd week.
         

ABOUT NON-GAAP FINANCIAL MEASURES

The accompanying press release dated March 18, 2014, contains non-GAAP financial measures. These non-GAAP financial measures include non-GAAP loss from continuing operations and non-GAAP loss from continuing operations per share for the fourth quarters and fiscal years 2013 and 2012, respectively, and non-GAAP loss from continuing operations per share guidance for the first quarter of fiscal 2014. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. These non-GAAP financial measures do not reflect a comprehensive system of accounting, differ from GAAP measures with the same names and may differ from non-GAAP financial measures with the same or similar names that are used by other companies. The Company computes non-GAAP financial measures using the same consistent method from quarter to quarter and year to year. The Company may consider whether other significant items that arise in the future should be excluded from the non-GAAP financial measures. The Company has excluded the following items from all of its non-GAAP financial measures:

  • Derivative liability
  • Deferred tax valuation allowance

The Company believes that these non-GAAP financial measures provide meaningful supplemental information regarding the Company's operating results primarily because they exclude amounts that are not considered part of ongoing operating results when planning and forecasting and when assessing the performance of the organization, individual operating segments or its senior management. In addition, the Company believes that non-GAAP financial information is used by analysts and others in the investment community to analyze the Company's historical results and in providing estimates of future performance and that failure to report these non-GAAP measures, could result in confusion among analysts and others and create a misplaced perception that the Company's results have underperformed or exceeded expectations.

CONTACT: Michael W. Kaplan
         Chief Financial Officer
         (714) 414-4003

Pacific Sunwear of California, Inc. Logo

Pacific Sunwear of California, Inc.