It's been a long time since Pacific Sunwear (NASDAQ:PSUN) investors were treated to an "earnings beat." But so long as the sun keeps rising, and PacSun keeps reporting earnings, there's always the chance for a better day. Will tomorrow be that day? We'll find out soon. The casual clothier returns to Wall Street to report its Q1 2006 results after market close.
What analysts say:
- Buy, sell, or waffle? Eighteen analysts follow PacSun. Seven rate it a buy, eight a hold, and three a sell.
- Revenues. Analysts are looking for 7% year-over-year improvement in sales, to $299.9 million.
- Earnings. But they expect profits to slump 30%, to $0.16 per share.
What management says:
PacSun's earnings releases are pretty laconic -- but in a good way. Laying out just the facts for fiscal 2005 back in February, CEO Seth Johnson was still able to paint a very pretty picture for shareholders. Sales rose 13% for the year, firmwide profits 18%, and profits are the shareholder level 21%, as the firm "improved [its] operating margin to a record 14.2%" and repurchased 2.8 million shares at an average price of $23.37 per share.
See how that works? Start with sales growth, improve the profits earned on said sales to get even stronger profits growth, and then reduce the number of shares among which the profits get divvied up. That's how you give your investors 62% more profits growth than with sales growth alone. And it gets even better. PacSun isn't one of those companies that fears to show its owners the books. Its earnings releases include full cash flow statements, showing you where the money goes. And why shouldn't they? After all, the free cash flow (FCF) picture looks even better than the GAAP net profits news: $75 million in FCF in fiscal 2006 made for a 23% improvement over fiscal 2004.
Looking forward, Johnson predicted profits of about $0.20 per share for the first quarter of 2006.
What management does:
Unfortunately, the good news ended there -- at least temporarily. In April, the company guided investors to expect only $0.14 to $0.16 in profits, an estimate that it reiterated earlier this month when reporting April and Q1 sales numbers. The latter, by the way, came in at $300 million, edging out the analyst estimate noted above.
The Fool says:
Commenting on PacSun's 2005 results, Motley Fool Stock Advisor co-analyst Tom Gardner, who recommended the stock to our subscribers, opined that: "Right now, the company is going through a little bit of a lull in its sales.... In general, the company has indicated that its current line isn't doing as well as hoped, and that the next new product line comes out around June 1."
So it may take another couple of months for PacSun to start pulling out of its sales slump. Regardless, Tom reiterated that "the long-term story [remains] unchanged." Every company has bad days. PacSun appears to have had a couple of bad months, and could perhaps be in for another one or two. But as long-term investors, we see no reason not to stick with PacSun while it works to create more quarters as successful as the one we saw back in February.
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Competitors:
- Abercrombie & Fitch (NYSE:ANF)
- Aeropostale (NYSE:ARO)
- American Eagle (NASDAQ:AEOS)
- Gap (NYSE:GPS)
- Hot Topic (NASDAQ:HOTT)
- Urban Outfitters (NASDAQ:URBN)
Gap has been recommended by our Stock Advisor and Inside Value newsletter services.
Fool contributor Rich Smith does not own shares of any company named above.
