That $293 million buyout offer for Pacific Sunwear
Well, maybe not, considering the three-store chain has scant financing to put the deal together, let alone the dubious history of its CEO. More to the point, though, PacSun was able to narrow its loss for the quarter even as sales continued to take it on the chin. Add in an analyst saying the surf-and-skate crowd retailer can probably survive as a going concern and presto! You've got a viable investment again.
The upheaval that wrenched the markets in September and October was unprecedented in recent years. While the financial markets tottered, consumers basically shut down their spending. Was that the cause of or a response to the drama? I tend to lean more toward the latter. If you unsure whether Western civilization is on the precipice of collapse, that Element t-shirt your teen is eyeing doesn't quite seem so important.
The waters aren't calm yet, but with the Christmas season approaching, I think corporate management is taking a prudently cautious outlook. PacSun, for example, is forecasting high single-digit declines in same-store sales. Abercrombie & Fitch
Yet I like PacSun here for a number of reasons. While some competitors, like Volcom
Until the economy began to tank in earnest in 2007, PacSun had been able to grow revenues at a five-year compounded annual growth rate of 18% while profits grew at 26%. Admittedly, since the close of 2006, they've pretty much been shredded, and getting out of the current economic malaise is obviously the first priority. Once achieved, however, a leaner PacSun ought to be able to return to its profit-making ways.
When a stock has lost 90% of its value over much of the past year, it's difficult to believe the investment thesis can still hold. As a shareholder, I've ridden this one all the way down, but have not considered selling; this appears to be a retail story that can still ride the next wave.
Pacific Sunwear is a Motley Fool Hidden Gems Pay Dirt pick. Volcom is a Motley Fool Hidden Gems recommendation. Gap is a Motley Fool Inside Value selection. Pacific Sunwear, Gap, and American Eagle Outfitters are Motley Fool Stock Advisor selections. The Fool owns shares of American Eagle Outfitters. Try any of our Foolish newsletters today, free for 30 days.
Fool contributor Rich Duprey owns shares of PacSun but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.