Teen retailer Pacific Sunwear (NASDAQ:PSUN) will report first-quarter results on Monday, May 21.

What analysts say:

  • Buy, sell, or waffle? Twenty analysts cover the Motley Fool Stock Advisor recommendation, and more than half -- 12 of them -- rate it a hold. Apparently, seven think the interim CEO can eventually maneuver a turnaround and they say buy, while one says sell.
  • Revenue. Sales are expected to inch up 3% to $310.1 million.
  • Earnings. The company, on the other hand, is actually expected to swing to a loss of $0.03 per share, though estimates range from a loss of $0.05 to a profit of $0.06 per share.

What management says:
It looks like interim CEO Sally Kasaks' hope of "getting the right product into the store" didn't happen, as first-quarter sales came in below analyst expectations. When announcing April's disappointing same-store sales, PacSun officials said that revenue would be only $309.3 million, so it would have to ratchet back its expectation for a profit to one for a loss.

Comps came in extremely weak last month, falling more than 16%, after a rather surprisingly strong 14% increase the month before. But sales at both PacSun stores and its demo concept stores were particularly harsh in April, so that the meager $0.04 to $0.05 per-share profit it had predicted -- which itself was reduced guidance from rosier predictions -- would now turn into a loss of like proportions.

What management does:
Thinning out the clothing racks to make the store appear less cluttered has led to margins getting trimmed back significantly. Cutting inventory, writing off markdowns, and taking charges for closing bunches of demo stores has been eroding profits at ever greater rates. The turnaround has been sluggish at PacSun, and one can imagine that Kasaks only has some limited amount of time to show results before she's no longer CEO, interim or otherwise.

There's some hope that May's comps numbers will be brighter. After a dismal first week in April, when same-store sales were off 30%, each succeeding week improved until they turned positive in the last week. Considering recent performance, however, there's no guarantee that momentum will continue.

Margins

01/06

04/06

07/06

10/06

02/07

Gross

37.3%

35.9%

34.9%

33.1%

30.9%

Operating

15.2%

13.4%

12.2%

9.7%

4.5%

Net

9.1%

8.5%

7.7%

5.5%

2.7%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
As lousy as PacSun's quarter was, the surprisingly weak downturn in April didn't happen in a vacuum. Many teen retailers reported seriously lackluster sales, including American Eagle Outfitters (NYSE:AEO), Gap (NYSE:GPS), and Abercrombie & Fitch (NYSE:ANF). And it wasn't just the teen segment that missed: Mass retailers like Target (NYSE:TGT) and Wal-Mart (NYSE:WMT) were well off projections, and department stores like J.C. Penney (NYSE:JCP) couldn't find customers in April.

There are a lot of problems endemic to PacSun that industrywide trends can't resolve. They can, however, exacerbate the situation, and the teen retailer may be walking the fine line of relevancy. Until PacSun shines through the clouds for at least or quarter or two, I'd align myself with the analysts who say hold on putting any money here.

For related Foolishness:

Pacific Sunwear has earned a two-star rating from Motley Fool CAPS, the new investor intelligence community. You can add your voice by joining today. It's free!

American Eagle Outfitters and Gap are also Stock Advisor recommendations. A 30-day risk-free trial lets you see why teen retailers might still be hot, as well as all the other market-beating recommendations.

Fool contributor Rich Duprey owns shares of Wal-Mart but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. Gap is also an Inside Value selection, along with Wal-Mart. The Motley Fool has a disclosure policy.