Pacific Sunwear Of California Management Discusses Q1 2012 Results - Earnings Call Transcript

Pacific Sunwear of California (PSUN)

Q1 2012 Earnings Call

May 17, 2012 4:30 pm ET

Executives

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

Analysts

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

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

Dana Lauren Telsey - Telsey Advisory Group LLC

Travis Williams - Stephens Inc., Research Division

Jeffrey Wallin Van Sinderen - B. Riley & Co., LLC, Research Division

Adrienne Tennant - Janney Montgomery Scott LLC, Research Division

Presentation

Operator

Good afternoon. My name is Allie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q1 2012 earnings conference call. [Operator Instructions] Thank you. Mr. Gosselin, you may begin your conference.

Craig E. Gosselin

Thank you. Good afternoon, everyone, and welcome to the Pacific Sunwear of California Conference Call announcing our Fiscal First Quarter 2012 Financial Results. I'm 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 May 24, 2012. It can be accessed at (855) 859-2056 or (404) 537-3406, passcode 78167566. The call will also be archived on our website at pacsun.com through midnight on August 22, 2012.

Your speakers today are Gary Schoenfeld, Chief Executive Officer; and Michael Kaplan, Chief Financial Officer. [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 made with the SEC, as well as in the earnings press release we issued today.

These documents can be found in the Investor Relations website -- section on our website at pacsun.com. All information discussed on the call is as of today, May 17, 2012. PacSun undertakes no duty to update this information to reflect future events or circumstances.

This call, the webcast and its replay are the property of Pacific Sunwear. 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, and thank you all for joining us today. I'm pleased to say that we experienced a significant improvement in our business since the time of our last conference call, which resulted in sales for the first quarter at the high end of our guidance and gross margins and non-GAAP EPS that exceeded the high end of our range.

Sales from continuing operations for the first quarter were $174 million this year versus $172 million last year, and our first quarter operating loss was reduced by nearly $10 million compared to a year ago.

Specific highlights for the quarter included: positive comp of 1% in both men's and women's; 160 basis point improvement in merchandise margins; lower occupancy costs and SG&A expenses, both at absolute dollars and as a percentage of sales; and lower inventory compared to a year ago.

At the time of our last release on March 13, we indicated that sales for the quarter were running at the low end of our guidance -- of our Q1 guidance of a minus 4 comp, but that we were hopeful this would improve with deliveries of new product and as we got into more of the peak spring selling season.

Over the next 6 weeks, through the end of the quarter, we had an 8-point swing to a positive 4 comp, resulting in a positive 1 comp for the quarter as a whole.

Shorts and denim, including chinos and casual pants, were among our strongest categories, as both genders achieved a positive comp for the first time since fiscal 2005.

Our reentering into footwear and accessories continues to be a growth opportunity for us. And for the first time, Nike has become the top-selling footwear brand at PacSun.

One of our merchandising objectives is to broaden our range of price points across different categories. Oakley has led the way with our relaunch of branded sunglasses at price points in excess of $150. And as Nike continues to drive its brand toward performance and innovation, we look forward to adding higher price point Nike signature products for back-to-school to further propel this part of our business.

Another important step for us in the first quarter was the launch of our Golden State of Mind brand positioning. Regrettably, over the past several years, PacSun lost some of its identity as a brand and its relevance among target consumers, yet an important part of why I joined PacSun is that this brand has a great 30-year heritage tied to action sports as a core element of California lifestyle. And with this new Golden State of Mind platform, I believe we can reestablish the emotional connection and leadership position that PacSun enjoyed for so many years across all 50 states.

So I will wrap up by saying that it has been a total team effort in driving these improvements in the first quarter. And while we are pleased with our start to the fiscal year, we also know there is still much more to be done.

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