Why PacSun Shares Popped and Then Dropped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Pacific Sunwear of California (NASDAQ: PSUN  ) were glowing today, climbing 11% on anticipation of strong earnings report after hours today, but gave back all those gains after delivering its results.

So what: Stocks often gain a few percentage points in the run-up to highly anticipated earnings, but it's rare to see a jump like this. PacSun has been on a tear this year as investors buy into its turnaround strategy, and shares were up 150% from the beginning of the year. However, those hopes were dashed after the quarter's results were released this afternoon. Adjusted earnings per share came in at $0.02, beating expectations of breakeven, while revenue was slightly below estimates. PacSun reported sales of $215.2 million, missing the consensus at $215.7 million, and comparable sales increased 3%.

Now what: While those results were decent, compared with expectations, they certainly don't merit the 11% jump PacSun shares experienced during the trading session. The retailer's guidance for the current quarter also turned off investors as it sees an EPS loss of $0.09-$0.04, while analysts had expected another breakeven quarter. The company is blaming $0.06 of that loss to losing a week in the calendar, but also see comparable slowing to -1% to 3%. With middling results like that ahead, it's not surprising to see the share price coming back toward earth.

Pacific Sunwear isn't the only retailer struggling these days. The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of the last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the "3 Companies Ready to Rule Retail" in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.



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