Pacific Sunwear (
Q3 2010 Earnings Call
November 22, 2010 4:30 p.m. ET
Craig Gosselin – Senior Vice President of Human Resources and General Counsel
Gary Schoenfeld – Chief Executive Officer
Michael Henry – Chief Financial Officer
Adrienne Tennant – Janney Capital
Paul Lejuez - Nomura
Janet Kloppenburg – JJK Research
Christine Chen – Needham & Company
David Griffith - Roth Capital Partners
Mitch Kummetz – Robert W. Baird
Marni Shapiro - The Retail Tracker
Dorothy Lakner – Caris & Company
Jeff Van Sinderen – B. Riley & Company
Linda Tsai – MKM Partners
Betty Chen - Wedbush Securities
Charu Sharma – KeyBanc
Sean Naughton - Piper Jaffray
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At this time I would like to welcome everyone to the third quarter 2010 earnings conference call. [Operator Instructions.] At this time I would like to turn the conference over to Mr. Craig Gosselin. Sir, you may begin.
Thank you. Good afternoon, and welcome to the Pacific Sunwear of California conference call announcing the company’s fiscal third quarter 2010 financial results. This is Craig Gosselin, senior vice president, general counsel and head of human resources.
This call is being recorded and the playback will be available starting today approximately two hours after the call through midnight on November 29, 2010. It can be accessed at (800) 642-1687 or (706) 645-9291, pass code 23412284. The call will also be archived on the Pac Sun website at www.pacsun.com through midnight on March 9, 2011.
Your speakers today are Gary Schoenfeld, chief executive officer; and Mike Henry, chief financial officer. Today's call will be limited to one hour, and questions will be limited to one per participant.
Before I turn the call over to Gary, I'd like to note that statements and discussions during today's call will contain forward-looking information about our future financial performance and prospects. Our actual results could differ materially from those contained in our forward-looking statements. Risks and uncertainties that could cause our business and financial results to differ materially from those in the forward-looking statements are included in our fiscal 2009 Form 10-K and in subsequent filings we made with the SEC, as well as in the earnings press release we issued today.
These documents can be found in the Investor Relations section on our website at pacsun.com. All information discussed on the call is as of today, November 22, 2010. Pacific Sunwear undertakes no duty to update this information to reflect future events or circumstances. This call, the web cast, and its replay are the property of Pac Sun. It is not for rebroadcast or use by any other party without the prior written consent of Pac Sun. With that said, I'll now turn the call over to Gary.
Good afternoon, and thank you for joining us today. I'm generally pleased with the progress we're making, as evidenced by our third quarter results, which exceeded our sales and earnings expectations for the quarter.
Total sales for the third quarter were $258 million, reflecting a comp store sales decline of 3% and continuing our sequential quarterly comp improvement that we outlined at the beginning of the year. Our GAAP EPS loss was $0.11 for the third quarter. On a comparable non-GAAP basis, using a normalized tax rate, our EPS loss would have been $0.07 versus a GAAP loss of $0.17 a year ago.
Highlights during the quarter were the continued progress of our men's business, which has now improved its trending for five consecutive quarters, including positive comps for the last two quarters. Our women's business similarly improved its trending, from what had been declines in excess of 20% for the last several quarters, to a decline of 10% in the third quarter.
At the beginning of this fiscal year, our primary financial goals that we outlined were to achieve sequential quarterly improvement in the trending of our same-store sales, hopefully leading to a positive comp in Q4, with a positive comp for the full year in men's, coupled with improvements in margins and further reductions in SG&A expenses. I'd like to comment briefly on each of these.
In terms of total comp sales, we've come from a decline of 15% in Q1, 10% in Q2, to -3% in Q3. We believe we can continue this trend of sequential improvement in the fourth quarter, yet we're off to a slower start than anticipated through the first three weeks of November, with improved AURs being offset by lower transactions, hence our current guidance of -5[%] to flat comp for Q4.
We saw somewhat of a similar slowdown last year at this time before the real traffic of the holiday season began in earnest. We think our stores and our assortments are compelling, and are eagerly awaiting Black Friday later this week. Several weeks ago I was asked to appear on CNBC early next Monday morning following Black Friday weekend and we will know more about how the holiday season is starting out at that time.
Regarding our second objective on men's, I'm pleased to say that our men's comp is now positive year-to-date, and continue to be enthused about the direction of our men's business and the brands we are working with as we finish the year and look ahead to 2011.
With regards to merchandise margins for Q3, they were not as strong in two categories as we would have liked, in denim and wovens, which caused us to be more promotional during the back to school period, yet we remain on track for significant improvement in margins in Q4.
And lastly, with regard to SG&A for the year, we continue to be mindful in managing expenses and expect to end the year at $300-$305 million in SG&A expenses versus our initial guidance of $310-$320 million and compared to $340 million last year.
Stepping back to when I joined Pac Sun in the summer of 2009, we knew we had a lot of work to do to reestablish Pac Sun as a leader in the teen space in a challenging economic environment and a very competitive marketplace. I talked about the importance of reestablishing our relationships with brands, improving our merchandising and selling culture within our stores, connecting with our customers, and reigniting a culture of passion and creativity within Pac Sun.