Why Pacific Sunwear of California, Inc. Shares Got Burned

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 getting dumped today, falling as much as 26%, as guidance in its first-quarter report was underwhelming.

So what: The apparel retailer actually beat estimates in the past quarter, as comparable sales improved 3%. Meanwhile, overall sales actually fell 3%, to $166.4 million, due to store closures; but that matched estimates. On the bottom line, the company's $0.11 per-share loss was better than expectations of a -$0.13 shortfall. CEO Gary Schoenfeld said the company was competing in a "tough marketplace," and that weakness in some women's categories had prompted a "cautious outlook for the current quarter."

Now what: For the current quarter, the company sees comparable sales going negative for the first time in two years, and expects an EPS loss of -$0.08 to -$0.02, worse than the Wall Street view at a $0.02 profit. Revenue guidance of $200-$210 million was also below the consensus at $216.1 million. While that guidance may be conservative, and Schoenfeld pointed to growth in the company's men's division, after three straight years of losses, Pacific Sunwear doesn't deserve the benefit of the doubt from investors. I'd like to see more convincing steps to profitability and growth before considering investing in PacSun.

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