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Pacific Sunwear of California (PSUN)

Q2 2012 Earnings Call

August 22, 2012 4:30 pm ET


Craig E. Gosselin - Senior Vice President of Human Resources, General Counsel and Secretary

Gary H. Schoenfeld - Chief Executive Officer, President and Director

Michael W. Kaplan - Chief Financial Officer, Principal Accounting Officer and Senior Vice President


Adrienne Tennant - Janney Montgomery Scott LLC, Research Division

David M. King - Roth Capital Partners, LLC, Research Division

Jane Thorn Leeson - KeyBanc Capital Markets Inc., Research Division

Chris Armbruster - B. Riley & Co., LLC, Research Division

Andrew Burns - D.A. Davidson & Co., Research Division

Mitchel J. Kummetz - Robert W. Baird & Co. Incorporated, Research Division

Alex Pham - Wedbush Securities Inc., Research Division

Paul Lejuez - Nomura Securities Co. Ltd., Research Division



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Good afternoon. My name is Pia, and I will be the conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2012 Earnings Conference Call. [Operator Instructions] Thank you. I would now turn the conference over to Mr. Craig Gosselin. Please go ahead, sir.

Craig E. Gosselin

Good afternoon, everyone, and welcome to the Pacific Sunwear conference call announcing our fiscal second quarter 2012 financial results. My name's 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 2 hours after the call through midnight on August 29, 2012. It can be accessed at (855) 859-2056 or (404) 537-3406 passcode 17924719. The call will also be archived on our website at through midnight on November 28, 2012.

Your speakers today are Gary Schoenfeld, our CEO; and Michael Kaplan, our CFO. [Operator Instructions]

Before I turn the call over to Gary, I'd like to note the 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 2011 Form 10-K and in subsequent filings we've 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 All information discussed on the call today is as of today's date, August 22, 2012. Pacific Sunwear undertakes no duty to update this information to reflect future events or circumstances.

This call, the webcast and its replay are the property of PacSun. It is not for rebroadcast or use by any other party without the prior written consent of PacSun. With that said, I'll now turn the call over to Gary.

Gary H. Schoenfeld

Thank you, Craig. Good afternoon, everyone, and thank you for joining us this afternoon.

On our last conference call for the first quarter, we talked about progress we had achieved in all 5 key metrics of positive sales comps and improved merchandise margins, operating expenses, inventory management and non-GAAP EPS. These positive trends continued and, in total, were even better in Q2.

While the retail landscape remains intensely competitive, I believe the progress we have made in the first half of the year reflects the significant changes we have made to the business, and we continue to be focused on 3 main tenets of our strategy: authentic brands, trend-right merchandising and reestablishing a distinctive customer connection that once again makes PacSun synonymous with the creativity, optimism and diversity that is uniquely California. Michael will speak to more of the financial details, but let me briefly touch on a few of the highlights.

Comp store sales for Q2 were up 5%. Men's comps were up 7%, which represents our biggest increase in Men's since 2004, and Women's continued to improve with the 2% comp coupled with better margins. Our e-com business also performed well with a 15% increase.

Merchandise margins were up 260 basis points, and inventory at the end of the quarter was down 6% on a comp basis. And both GAAP and non-GAAP EPS improved significantly with non-GAAP EPS, a loss of $0.08 versus $0.17 a year ago.

Newer emerging brands such as Diamond, Crooks and Castles, Young & Reckless and Modern Amusement are leading the growth in our Men's business, coupled with Vans and Nike, which are anchoring our men's footwear business. Roxy and Billabong continue to be important brands in our Women's business. Yet in this fast-changing world of Instagram and Pinterest, it is increasingly clear that trend-right product is absolutely essential to success with our target 17- to 24-year-old female customers.

We continue to receive positive feedback from customers, brands and our own sales associates in response to the rollout of our Golden State of Mind brand positioning. Customers are experiencing our brand and our unique filter of California lifestyle through multiple touch points in our stores and online, and we believe this will continue to be a critical differentiator for PacSun as we reestablish an emotional connection with customers across the entire United States.

We know our customers are living online, and we are identifying the most effective ways to connect with them, looking for places where PacSun can live in their digital world. As some of you may recall, we rolled out, a new domain that embodies the PacSun California lifestyle earlier in the second quarter. As PacSun's highly interactive brand experienced site, allows the user to experience all things California in 6 key categories, including fashion, music, art, entertainment, action sports, and of course, with our brands.

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