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What was supposed to be a tubular rebound for surf and skate specialty retailer Pacific Sunwear (Nasdaq: PSUN ) took another step toward flailing disaster last night, after the company reported worse-than-anticipated quarterly results.
PacSun, which has been "turning itself around" for five years now, is wearing its shareholders' patience thin. Fourth-quarter results showed a loss of $0.53 on revenue of $263 million, both worse than initial expectations. For the year, same-store sales fell 8%, and revenue slipped 10%, while full-year losses ballooned to $1.46.
What's wrong with Pacific Sunwear you might ask? CEO Gary Schoenfeld summarized it best in last night's quarterly report:
While we believe we have made progress in several critical areas, we clearly have much still to accomplish to turn this business around. Among our highest priorities include reestablishing our Spring/Summer Women's business, mitigating product cost pressures, and attracting new customer to PacSun.
I'd pretty much call that an epic wipeout. Retail has a few very basic strategies for success:
- Attract customers to your store.
- Keep those customers coming back.
- Have the right assortment of products for them to choose from.
In a nutshell, Schoenfeld just told us that PacSun can't get new customers into the store, that it's losing sales to competitors, and that it can't get the right mix of clothing in order to pass along rising input costs onto the consumer. That's what makes me question its ability to even complete a turnaround.
It's the inventory, stupid!
Zumiez (Nasdaq: ZUMZ ) and Quiksilver (NYSE: ZQK ) seem to be taking market share away from PacSun hand over fist. Zumiez saw revenue grow by 18% in the fourth quarter, and it plans on opening more than 40 stores this year. Quiksilver, though not growing as strongly as Zumiez, also projects revenue to increase in 2011.
PacSun, on the other hand, hasn't turned in a full-year profit since the year ending February 2007, and it could face a serious margin pinch from rising material costs. Its 2011 first-quarter guidance calls for its gross margin to fall 200 to 400 basis points year-over-year. Even worse, its inventory levels are up by 6% over last year. With losses projected into 2012, Pacific Sunwear may burn through its remaining $64 million in cash and force it to issue more shares or take on more debt to run its day-to-day operations.
As far as I'm concerned, you can stick a fork in Pacific Sunwear -- it's done.
What's your take on Pacific Sunwear: Gnarly value or bogus disaster? Share your thoughts in the comments section below, and consider adding Pacific Sunwear to My Watchlist, your own free and easy-to-use personalized portfolio of stocks. (We promise it's wipeout-free.)