All of us retail investors obsess too much about same-store sales growth from month to month, but it's an addiction that's tough to break. Yeah, a month or two doesn't mean much in the grand scheme of things, but if you string together too many stinkers, your stock will be in a world of hurt.
Motley Fool Stock Advisor recommendation Pacific Sunwear (NASDAQ:PSUN) is one of those teentailers paving a highway to heck with its sales growth these days. On the heels of some previous disappointments, you can tack on June's sales. For the month, comparable-store sales dropped 2.7%, led by an 8.5% decrease at its d.e.m.o. locations. Overall, revenues grew 4.6% for the month.
That puts total sales on a 6.2% increase for the first 22 weeks of the year, but comps have dipped 2.2% for the same period. On the basis of these lackluster results, PacSun reduced guidance to the range of $0.19 to $0.21 per share for the upcoming quarter.
With PacSun, at this point, it all comes down to price. When I crunch the numbers, I need to bank on 20% growth for quite a while to get this thing to come out fairly valued at today's prices. But the trends I'm seeing don't point to growth of that magnitude.
If I'm going to pay fair-to-too-much for a retailer, I'll take one with a better competitive position, such as ChicosFAS (NYSE:CHS), Abercrombie & Fitch (NYSE:ANF), or something firing on all cylinders, like Guess? (NYSE:GES), American Eagle Outfitters (NYSE:AEOS), or Zumiez (NASDAQ:ZUMZ). If I want to buy a stagnating, second-tier retailer in a hypercompetitive space, I want to at least get the bargain-basement price.
I think Pacific Sunwear will eventually pull out of this trough, but I don't see any reason to put my chips on the line at this price. If you like the biz, I say wait for $16 and start nibbling then. (I talked a bit about how I valued the stock last month, and I've ratcheted back my expectations a bit since.) If you're not crazy about the product or the price, take a look at some of PacSun's competitors.
Pacific Sunwear is one of Tom Gardner's Motley Fool Stock Advisor recommendations that hasn't exactly worked out -- at least, not yet. It happens to the best of them. But you can take a look at a stable of stocks that has nonetheless outperformed the S&P 500 by 50 percentage points since April 2002 with a free trial.
American Eagle Outfitters is a Motley Fool Stock Advisor selection. Zumiez is a Motley Fool Hidden Gems recommendation.
Seth Jayson spends far too much time in the teenybopper section. At the time of publication, he had shares of Guess? and American Eagle, but no positions in any other firm mentioned. View his stock holdings and Fool profile here . Fool rules are here .
