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TheStreet Open House

PacSun (PSUN) Holiday Sales Forecast Cloudy Outlook

NEW YORK (TheStreet) -- Pacific Sunwear of California (PSUN), informally known as PacSun, saw share prices plummet in pre-market trading after announcing holiday sales which failed to impress.

The urban casual retailer said fourth-quarter comparable store sales through to Jan. 4 were flat, excluding online sales. Comparable sales increased 1% when online purchases were factored in.

"After a strong start to the holiday season in November, the first three weeks of December were significantly below our expectations primarily due to a decrease in traffic and softness in denim. Business picked up in the final few days prior to Christmas and then finished the month strong as self-shoppers came back to the mall. Overall, it has been a choppy holiday season and we now expect fourth quarter comparable store sales to be flat to 1%, compared to last year," said CEO Gary H. Schoenfeld in a statement.

The Anaheim, Calif.-based business said it now expects a fourth-quarter net loss between 18 cents and 21 cents a share, compared to a net loss of 20 cents a share in the same quarter a year earlier. Analysts surveyed by Thomson Reuters had expected a loss of 14 cents a share.

Revenue is expected within the range of $211 million to $214 million, compared to consensus of $218.52 million.

In pre-market trading, shares have plunged 17.5% to $3.53.

TheStreet Ratings team rates PACIFIC SUNWEAR CALIF INC as a Sell with a ratings score of D-. The team has this to say about their recommendation:

"We rate PACIFIC SUNWEAR CALIF INC (PSUN) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, disappointing return on equity and poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The debt-to-equity ratio is very high at 2.02 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.14, which clearly demonstrates the inability to cover short-term cash needs.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Specialty Retail industry and the overall market, PACIFIC SUNWEAR CALIF INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for PACIFIC SUNWEAR CALIF INC is currently lower than what is desirable, coming in at 28.03%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 8.34% is above that of the industry average.
  • PSUN, with its decline in revenue, underperformed when compared the industry average of 8.2%. Since the same quarter one year prior, revenues slightly dropped by 4.1%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • This stock has increased by 105.98% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the future course of this stock, we feel that the risks involved in investing in PSUN do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.

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