You know things are getting threadbare when even an extra week of selling barely lifts sales.
That's what's happening at Pacific Sunwear (Nasdaq: PSUN ) . The teen surf-and-skate retailer reported revenues that were 8% higher thanks to a 14th week in the fourth quarter. But it also announced that same-store sales were off, and profits fell dramatically year over year.
It's a turnaround story that, unfortunately, has yet to turn around. With the new management team in place for less than a year, it's also too soon to say the story is unraveling. A few runs, pulls, and pills maybe, but it's not a company ready for the Goodwill box -- at least not yet.
Interim CEO Sally Kasaks has undertaken a number of initiatives, including closing down 74 underperforming demo stores by the coming second quarter. She's also clearing out inventory from the stores to give it a less cluttered look, and inventory per square foot is down by mid-teen percentages from the year-ago period.
While that gives the company room to bring in new styles earlier and evaluate their success, as fellow Fool Rich Smith suggested last quarter, with continuing declines in same-store sales, it has the potential to hurt revenues by not having enough stock on hand. Still, having been in a few PacSuns, I agree they can stand a bit of thinning of the racks.
Results to date have been mixed. Revenues rose to $458 million in the quarter, helped by that extra week, but it was also more than what analysts had anticipated. Profits, though, were ripped asunder some 80% from the year-ago period, which included charges for asset and inventory writedowns, as well as demo store closures of $0.24 per share. Taking out such charges improves things to $0.37, but that's still 40% below last year.
So-called urbanwear has been a disappointment to the Motley Fool Stock Advisor recommendation, and the demo stores are undergoing a major restructuring to better compete against Urban Outfitters (Nasdaq: URBN ) and Aeropostale (NYSE: ARO ) . Retailers in general have been having a rough go of it lately, but PacSun has been finding it particularly difficult going head to head (or is it thread to thread) against Aeropostale and Abercrombie & Fitch (NYSE: ANF ) .
To better position itself, PacSun is pinning its hopes for a faster turnaround on girls' fashion. It brought in new personnel to oversee the division, and along with clearing out the clutter, it's bringing in new product lines to boost sales.
That's a tall order. It launched its One Thousand Steps shoe store concept last April as a means of weaning itself off of fickle teen fashion tastes. Aimed at a slightly older female demographic, and with higher price points than typical PacSun offerings, the new store is finding it hard to connect with customers, regardless of their age. It will be adjusting floorspace-to-stockroom ratios at its shoe stores, but it won't be opening any more of them this year.
It looks like a scattershot approach to finding the right mix, hoping that something sticks. Stating the obvious, Kasaks admits it comes down to "getting the right product into the store."
Trends turn, as Hot Topic (Nasdaq: HOTT ) has learned, but that can end up being a costly education. We've got to give the new management team a time to flip the story here, but skate and surf may just not be the wave to ride anymore.
For more on the fickle fashion of teens, check out:
Pacific Sunwear is a Motley Fool Stock Advisor recommendation. A 30-day trial subscription lets you find out what Tom Gardner thinks about his retail selection, as well as all of the other market-beating picks.
Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
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