Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



A Ray of Sunshine at PacSun

Surf-and-sun teen retailer Pacific Sunwear (Nasdaq: PSUN  ) has seen the light and is carting its urban wear outfitter and shoe collection off to the Goodwill bin. Turns out that surfing apparel looks more flattering on the company, and management finally realized urban street wear just isn't its style.

I had suggested that PacSun stick to surfing when the teen retailer posted its September same-store sales numbers. Comps at its name-brand store posted respectable gains, with sales at stores opened for a year or more rising more than 5%. In contrast, rivals American Eagle Outfitters (NYSE: AEO  ) , Abercrombie & Fitch (NYSE: ANF  ) , and Gap (NYSE: GPS  ) all reported declining comps.

It was actually an easy call to make. While PacSun stores were reporting 5% gains for the month, continuing a string of rising sales, its urban gear stores demo and shoe concept, One Thousand Steps, were once again reporting steep declines. The concepts have encountered impairment charges, which has been squeezing net margin and has generated $21 million in operating losses in fiscal 2007 already.

Since being permanently named top surfer at this Motley Fool Stock Advisor recommendation, Sally Kasaks has aggressively moved to turn the retailer around. Prior to the "strategic alternatives" announcement, Kasaks had committed to closing down underperforming stores with gusto. Of the 74 demo stores identified earlier in the year as marked for closure, 60 were closed in the third quarter alone. The company will try to find a buyer for what remains, at least partially recouping PacSun's cost.

One Thousand Steps was a folly from the beginning. Then-CEO Seth Johnson had said selling women's shoes would allow PacSun to tap an "underserved market," but that seemed little more than wishful thinking and hyperbole, as there is a glut of such stores. While forecasting that it could open hundreds of One Thousand Steps stores, the reality never got beyond the original nine. PacSun reported last quarter that the stores were so operationally poor they could not generate enough cash flow over the life of their leases even to cover the company's initial investment in property and equipment. Was there really any doubt these stores would go?

I said I liked PacSun's valuation two weeks ago, and would like it even more if it simply focused on selling the clothes that it knew so well. Now that Kasaks has made that crucial decision, I find PacSun's even lower price-to-sales ratio of 0.78 incredibly enticing. Abercrombie, American Eagle, and Aeropostale (NYSE: ARO  ) sport ratios more than twice as expensive, while Zumiez (Nasdaq: ZUMZ  ) is nearly five times greater. At these levels, I believe PacSun will soon be basking in the glow of investor love.

Related Foolish article:

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 539330, ~/Articles/ArticleHandler.aspx, 10/22/2016 10:06:16 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 12 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
PSUNQ $0.00 Down +0.00 +0.00%
Pacific Sunwear CAPS Rating: *
AEO $17.66 Up +0.16 +0.91%
American Eagle Out… CAPS Rating: ****
ANF $15.75 Up +0.01 +0.06%
Abercrombie and Fi… CAPS Rating: *
AROPQ $0.04 Up +0.00 +2.99%
Aeropostale CAPS Rating: *
GPS $26.41 Down -0.07 -0.26%
Gap CAPS Rating: **
ZUMZ $22.50 Up +0.20 +0.90%
Zumiez CAPS Rating: **