Dude! Like, gnarly quarter, Sally!

Surf and skate retailer Pacific Sunwear's (NASDAQ:PSUN) third-quarter results suggested that its recent decision to jettison its failed attempts at urbanwear and shoes will pay off handsomely.

The teen retailer showed a $0.29-per-share loss on a GAAP basis, compared to a $0.13-per-share profit last year. But when you strip out the restructuring charges related to closing down its demo and One Thousand Steps stores, PacSun made a $0.16-per-share profit, beating analyst forecasts.

The Motley Fool Stock Advisor recommendation was able to report such gains because it decided to stick to its knitting -- er, surfing. When you look at just the PacSun stores, you see same-store sales rising like a wave, up 7.7% from the year before. CEO Sally Frame Kasaks' decision earlier this year to focus on the company's female customers is paying dividends as well, with junior apparel comps up 30% thanks to a greater focus on fashionable surf-style clothes. (Now there's an oxymoron.)

The company is also making a conscious decision not to sit still. After a few failed ventures like demo and One Thousand Steps, you'd think PacSun might be a little gun-shy about venturing off again. To the contrary, the company is expanding into snowboarding and bringing in a limited number of hard goods, including boards made by Burton. No need to be reticent here: This is a smart move.

As rival Quiksilver (NASDAQ:ZQK) has shown, surf and ski are two closely related industries. PacSun's foray into urban clothes was precarious, because in that market, "street cred" probably means as much to the success of a venture as the brands a store carries -- and a surf shop just doesn't have it. But snowboarding is a natural extension of skateboarding and surfing.

Yet where Quiksilver faltered when it bought ski maker Rossignol, PacSun is simply carrying the inventory of a top-tier name in the field. Similar to its support for the U.S. Amateur Surf Team, PacSun will be sponsoring the amateur snowboard team as well. Again, this should be a better fit than its other attempts at expanding beyond surf and skate. Even the terminology is interchangeable among the sports; a half-pipe can be found in skating, surfing, and snowboarding.

The company has also gotten its inventory issues in line, which should help supplier Volcom (NASDAQ:VLCM) going forward. It's also seen an improvement in denim sales, which got off to a slow start because of warmer weather. Guys, apparently, are so predictable that we're considered "wear-now" shoppers, meaning that as the temperatures turned colder and more seasonally appropriate, we started buying more jeans. Having the appropriate inventory levels also allowed PacSun to improve margins by 150 basis points on a GAAP basis.

That helps going forward, where PacSun sees fourth-quarter same-store sales ranging from flat to single-digit increases compared to the year-ago period. Kasaks forecasts non-GAAP earnings of $0.32 to $0.35 per share. I think the low end sounds conservative, since Thousand Steps should be gone by year's end and demo is actively being shopped. Come 2008, the surf, skate, and snowboard crowd at PacSun might just see its stock doing 1440s of its own on the half-pipe.

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Pacific Sunwear is a Stock Advisor recommendation. Volcom is a Motley Fool Hidden Gems pick. See why teen retailers can be a profitable investment category with a 30-day risk-free trial subscription to either investment service.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.