OK, maybe I was asleep at the switch last quarter. As I wrote then, the market seemed shocked that Pacific Sunwear
With the teen retailer's second-quarter results now in the books, the souring economy has perhaps finally justified the dour outlook the market had on PacSun's future. Although the surf-and-skate clothier reported $0.06 per share profits from continuing operations, the outlook for the rest of the year seems to be deteriorating far more quickly than the company had let on. Investors appeared stunned yet again, as the stock tumbled nearly 30% on Friday.
Based on PacSun's new guidance, investors can expect the company to earn somewhere between $0.07 and $0.17 per share, a much more dismal outlook than the $0.59 to $0.64 per share it had been suggesting it would earn.
So is it time to throw in the towel on the retailer? I don't think so. In fact, this may be the buying opportunity investors are looking for.
The gloomy economy has hit essentially every retailer, other than perhaps Aeropostale
It's hard to find reasons for optimism among companies that rely on discretionary income, and PacSun's exposure to states that have experienced the worst of the housing deterioration doesn't help. Some 24% of its stores are in California, Florida, and the Southwest, and the economic implosion in those areas is taking its toll on PacSun's results.
Still, there were a number of bright spots tucked away in the folds of the bad. PacSun saw a slight uptick in sales, while comps fell by a meager 1%. That's not so bad, comparatively speaking.
Meanwhile, junior apparel achieved 26% same-store-sales growth. And management is successfully focusing on keeping inventory tight, to keep pace with near-term sluggish sales. As a result, inventory dropped 10% year over year.
The good news may seem like slim pickings, but I think it suggests that when the economy turns, PacSun will be able to reawaken itself from the slumber its business has taken.
Pacific Sunwear, Gap, and American Eagle Outfitters are Motley Fool Stock Advisor picks. Gap is a former Motley Fool Inside Value pick. The Fool owns shares of American Eagle Outfitters. Try any of our Foolish newsletter services free for 30 days.
Fool contributor Rich Duprey owns shares of PacSun but has no financial position in any of the other stocks mentioned in this article. You can see his holdings. The Motley Fool has a disclosure policy.