Death, taxes, and lowered earnings guidance from Pacific Sunwear
Tuesday night brought much of the same for shareholders of Pacific Sunwear, with the company reporting a 2% decline in revenue and an adjusted quarterly loss of $0.30. Oddly enough, these figures actually beat the already low-ball Wall Street estimates, but once again the company's guidance strangled all hope out of Pacific Sunwear optimists. The company guided its second-quarter EPS projections to a loss of $0.22 to $0.29 per share, while the consensus estimate called for a loss of just $0.19.
But relax, folks, this is a turnaround story ...
Meanwhile, inventory levels continue to remain dangerously high. Pacific Sunwear has struggled for the better part of a decade now to respond to the changing trends of teenagers and has either completely missed on style or on price point. The only constant has been staggeringly high inventory levels that require large discounts in order to be moved. It's no secret as to why PacSun is projecting gross margin in the 19% to 21% range.
But have no fear, there's a turnaround coming ...
Teen retailing in general hasn't fared well over the past quarter, but no company appears in worse financial shape than Pacific Sunwear -- unless of course you count American Apparel
Abercrombie & Fitch
But remember how I said this was a turnaround story?
I meant this is where I turn around and walk away from Pacific Sunwear for good. The company has been given numerous chances to turn itself around, and compared to its rivals, it's just not that good. Its balance sheet is a mess and considering I can go out and take a chance on a struggling, but still profitable, teen retailer trading at a single-digit forward P/E ratio like Aeropostale or even Gap at 11 times, why would I bother with a company that hasn't turned a profit in nearly three years? The clouds are rolling in on Pacific Sunwear, and it could mean a permanent sunset in the future if these trends continue.
What do you think? Is Pacific Sunwear's turnaround story for real or is this just another optimistic excuse preventing the inevitable? State your case in the comments section below and consider tracking Pacific Sunwear as well as your favorite retailers with the free and easy-to-use My Watchlist.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong. The Motley Fool owns shares of Aeropostale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that never goes out of fashion.