Surf-and-sun teen retailer Pacific Sunwear
I had suggested that PacSun stick to surfing when the teen retailer posted its September same-store sales numbers. Comps at its name-brand store posted respectable gains, with sales at stores opened for a year or more rising more than 5%. In contrast, rivals American Eagle Outfitters
It was actually an easy call to make. While PacSun stores were reporting 5% gains for the month, continuing a string of rising sales, its urban gear stores demo and shoe concept, One Thousand Steps, were once again reporting steep declines. The concepts have encountered impairment charges, which has been squeezing net margin and has generated $21 million in operating losses in fiscal 2007 already.
Since being permanently named top surfer at this Motley Fool Stock Advisor recommendation, Sally Kasaks has aggressively moved to turn the retailer around. Prior to the "strategic alternatives" announcement, Kasaks had committed to closing down underperforming stores with gusto. Of the 74 demo stores identified earlier in the year as marked for closure, 60 were closed in the third quarter alone. The company will try to find a buyer for what remains, at least partially recouping PacSun's cost.
One Thousand Steps was a folly from the beginning. Then-CEO Seth Johnson had said selling women's shoes would allow PacSun to tap an "underserved market," but that seemed little more than wishful thinking and hyperbole, as there is a glut of such stores. While forecasting that it could open hundreds of One Thousand Steps stores, the reality never got beyond the original nine. PacSun reported last quarter that the stores were so operationally poor they could not generate enough cash flow over the life of their leases even to cover the company's initial investment in property and equipment. Was there really any doubt these stores would go?
I said I liked PacSun's valuation two weeks ago, and would like it even more if it simply focused on selling the clothes that it knew so well. Now that Kasaks has made that crucial decision, I find PacSun's even lower price-to-sales ratio of 0.78 incredibly enticing. Abercrombie, American Eagle, and Aeropostale
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PacSun, American Eagle Outfitters, and Gap are all recommendations of Motley Fool Stock Advisor. See why teen wear is a winning investment with a 30 day risk-free trial subscription. Gap is also a recommendation of Inside Value. Zumiez is a Motley Fool Hidden Gems selection.