We get some excellent hatemail here at the Motley Fool. The rant du jour came from an angry Pacific Sunwear (NASDAQ:PSUN) investor, who's apparently miffed at having missed the 6% run-up the shares have made since last Wednesday, most of it on news of the departure of CEO Seth Johnson (no relation).

Though Pacific Sunwear is a recommendation of Motley Fool Stock Advisor, I've been pretty down on the company's prospects for several months now. I came to my bearish point of view from the opposite side. I was once a PacSun shareholder, and I got out, quite simply, because I saw the writing on the wall.

Month after month of crummy same-store sales led to downgraded profit guidance. That was reason enough for the Street to dump shares. But shares leveled off in the mid-teens. Frankly, I didn't think they were worth that -- and still don't -- because even if Pacific Sunwear manages to turn around sales and profitability in the short term, over the longer term, it has not proved able to take advantage of its growing size and scale.

2003

2004

2005

2006

TTM

Gross Margin

34.5%

35.8%

36.4%

36.4%

34.9%

Operating Margin

9.6%

12.3%

13.8%

14.2%

11.9%

Net Margin (Ex Items)

5.9%

7.7%

8.7%

9.1%

7.7%

Free Cash Flow Margin

4.3%

10.7%

5%

5.4%

(1.3%)


Margins jump all over, and free cash flow has dwindled. The company still operates in treacherous, shark-filled waters. Teen tastes turn on a dime, which is why I think heavy hitters like Abercrombie & Fitch (NYSE:ANF), with its outperforming Hollister beach division, are safer bets than second-tier near-values like PacSun.

Despite its lack of success with non-core concepts like the miserable d.e.m.o., Pacific Sunwear is nonetheless proceeding with the launch of a shoe concept.

That means two things to me. One, Pacific Sunwear ain't fixed what's broke, and two, it's distracted by new ideas.

PacSun really needs to fix the product and image problems that have crimped sales at existing stores. And maybe it ought to consider laying off the expansion until it knows what works, and how well that will pay off. Retail turnarounds don't always turn around. (I should know -- I own some of the wreckage.)

Until the driver's seat is occupied by something more substantial than Seth Johnson's lingering imprint, there's no way of knowing whether we're talking about an Ann Taylor (NYSE:ANN) situation here, or a Gap (NYSE:GPS). The difference can be staggering.

For more on what's hip and what's hype:

Gap is a Motley Fool Stock Advisor and Motley Fool Inside Value recommendation.

At the time of publication, Seth Jayson had no positions in any company mentioned here. View his stock holdings and Fool profile here. See what he's Digging these days. Fool rules are here.