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8-K - FORM 8-K - PACIFIC SUNWEAR OF CALIFORNIA INCd447376d8k.htm

Exhibit 99.1

 

LOGO

CONTACT:

Michael W. Kaplan

Chief Financial Officer

(714) 414-4003

PACIFIC SUNWEAR ANNOUNCES THIRD QUARTER OPERATING RESULTS;

ISSUES FOURTH QUARTER GUIDANCE

ANAHEIM, Calif., November 29, 2012 — Pacific Sunwear of California, Inc. (NASDAQ: PSUN) (the “Company”), announced today that net sales for the third quarter of fiscal 2012 ended October 27, 2012, were $228.4 million versus net sales of $226.8 million for the third quarter of fiscal 2011 ended October 29, 2011. Total Company same-store sales increased 1% during the period.

On a GAAP basis, the Company reported income from continuing operations of $0.9 million, or $0.01 per diluted share, for the third quarter of fiscal 2012, compared to a loss from continuing operations of $14.0 million, or $(0.21) per diluted share, for the third quarter of fiscal 2011. Income from continuing operations for the Company’s third quarter of fiscal 2012 included a non-cash gain of $5.6 million, or $0.08 per diluted share, related to a derivative liability that resulted from the issuance of the Convertible Series B Preferred Stock (the “Series B Preferred”) in connection with the term loan financing the Company completed in December 2011.

On a non-GAAP basis, excluding store closure related charges of $1.7 million and the non-cash gain on derivative liability of $5.6 million, and using a normalized annual income tax rate of approximately 37%, the Company would have incurred a loss from continuing operations for the third quarter of fiscal 2012 of $1.8 million, or $(0.03) per share, as compared to a loss from continuing operations of $7.1 million, or $(0.11) per share, for the same period a year ago.

“We continue to see evidence of our turnaround strategies taking hold with our third straight quarter of positive comparable store sales growth and a 260 basis point improvement in merchandise margins, on an adjusted basis,” said Gary H. Schoenfeld, President and Chief Executive Officer. “After a slow start to the first few weeks of back-to-school, we performed well during the peak of the selling season which translated to our first positive sales comp in the third quarter since 2007 and a more than $10 million improvement in our pre-tax operating results.”

Financial Outlook for Fourth Fiscal Quarter of 2012

The Company’s guidance range for the fourth quarter of fiscal 2012 accounts for a 53rd fiscal week and contemplates a non-GAAP loss per share from continuing operations of between negative $0.09 and negative $0.17, compared to negative $0.20 in the fourth quarter of fiscal 2011.

“With high single-digit comps on Black Friday, we finished the month of November at a 1% sales comp, similar to the third quarter,” Mr. Schoenfeld said.

The forecasted fourth quarter non-GAAP loss from continuing operations per share guidance range is based on the following assumptions:

 

   

Same-store sales of negative 1% to plus 3%;

 

   

Revenue from $225 million to $235 million;

 

   

Gross margin rate, including buying, distribution and occupancy, of 22% to 25%;

 

   

SG&A expenses in the range of $63 million to $65 million;


   

A normalized annual income tax rate of approximately 37%; and

 

   

Ending the period with approximately 645 stores.

The Company’s fourth fiscal quarter of 2012 guidance range excludes the quarterly impact of the change in the fair value of the derivative liability due to the inherently variable nature of this financial instrument.

Discontinued Operations

In accordance with applicable accounting literature and consistent with the Company’s financial statement presentation in its fiscal 2011 annual report, the Company has reclassified the results of operations of its closed stores as discontinued operations for all periods presented, as applicable.

Derivative Liability

In fiscal 2011, as a result of the issuance of the Series B Preferred in connection with the Company’s $60 million senior secured term loan financing with an affiliate of Golden Gate Capital, the Company recorded a derivative liability equal to approximately $15.0 million, which represents the fair value of the Series B Preferred upon issuance. In accordance with applicable U.S. GAAP, the Company has marked this derivative liability to fair value through earnings and will continue to do so on a quarterly basis until the shares of Series B Preferred are either converted into shares of the Company’s common stock or until the conversion rights expire (December 2021). The Company’s fourth fiscal quarter of 2012 earnings guidance excludes the quarterly impact of the change in the fair value of the derivative liability due to the inherently variable nature of this financial instrument.

About Pacific Sunwear of California, Inc.

Pacific Sunwear of California, Inc. and its subsidiaries (collectively, “PacSun” or the “Company”) is a leading specialty retailer rooted in the action sports, fashion and music influences of the California lifestyle. The Company sells a combination of branded and proprietary casual apparel, accessories and footwear designed to appeal to teens and young adults. As of November 29, 2012, the Company operates 722 stores in all 50 states and Puerto Rico. PacSun’s website address is www.pacsun.com.

The Company will be hosting a conference call today at 4:30 p.m. Eastern time to review the results of its third fiscal quarter. A telephonic replay of the conference call will be available, beginning approximately two hours following the call, for one week and can be accessed in the United States and Canada at (855) 859-2056 or internationally at (404) 537-3406; passcode: 70398157. For those unable to listen to the live Web broadcast or utilize the call-in replay, an archived version will be available on the Company’s investor relations website through midnight, March 19, 2013.

About Non-GAAP Financial Measures

This press release and the accompanying tables include non-GAAP financial measures. For a description of these non-GAAP financial measures and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles, please see the accompanying table titled “Reconciliation of Selected GAAP Measures to Non-GAAP Measures” and the section following such table titled “About Non-GAAP Financial Measures.”

Pacific Sunwear Safe Harbor

This press release contains “forward-looking statements” including, without limitation, the statements made by Mr. Schoenfeld in the fourth paragraph and the statements made by the Company and Mr. Schoenfeld under the heading “Financial Outlook for Fourth Fiscal Quarter of 2012.” In each case, these statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company intends that these forward-looking statements be subject to the safe harbors created thereby. These statements are not historical facts and involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Uncertainties that could adversely affect the Company’s business and results include, among others, the


following factors: increased sourcing and product costs; adverse changes in U.S and world economic conditions generally; adverse changes in consumer spending; changes in consumer demands and preferences; adverse changes in same-store sales; higher than anticipated markdowns and/or higher than estimated selling, general and administrative costs; currency fluctuations; competition from other retailers and uncertainties generally associated with apparel retailing; merchandising/fashion risk; lower than expected sales from private label merchandise; reliance on key personnel; economic impact of natural disasters, terrorist attacks or war/threat of war; shortages of supplies and/or contractors as a result of natural disasters or terrorist acts, which could cause unexpected delays in store relocations, renovations or expansions; reliance on foreign sources of production; and other risks outlined in the Company’s filings with the Securities and Exchange Commission (“SEC”), including but not limited to the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2012, and subsequent periodic reports filed with the SEC. Historical results achieved are not necessarily indicative of future prospects of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company assumes no obligation to update or revise any such forward-looking statements to reflect events or circumstances that occur after such statements are made. Nonetheless, the Company reserves the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this press release. No such update shall be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any other updates.


PACIFIC SUNWEAR OF CALIFORNIA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)

 

     Third Quarter Ended     Three Quarters Ended  
      October 27,
2012
    October 29,
2011
    October 27,
2012
    October 29,
2011
 

Net sales

   $ 228,434      $ 226,786      $ 612,563      $ 599,582   

Gross margin

     60,827        55,379        159,612        135,908   

SG&A expenses

     62,082        68,414        184,855        193,211   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (1,255     (13,035     (25,243     (57,303

Other (income) expense, net

     (2,314     1,178        6,336        2,292   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     1,059        (14,213     (31,579     (59,595

Income tax expense (benefit)

     111        (200     634        526   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     948        (14,013     (32,213     (60,121

Loss from discontinued operations, net of tax

     —          (3,589     —          (8,209
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 948      $ (17,602   $ (32,213   $ (68,330
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations per share:

        

Basic

   $ 0.01      $ (0.21   $ (0.48   $ (0.91
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.01      $ (0.21   $ (0.48   $ (0.91
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from discontinued operations per share:

        

Basic

   $ —        $ (0.05   $ —        $ (0.12
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ —        $ (0.05   $ —        $ (0.12
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share:

        

Basic

   $ 0.01      $ (0.26   $ (0.48   $ (1.03
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.01      $ (0.26   $ (0.48   $ (1.03
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding:

        

Basic

     67,914        66,855        67,746        66,468   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     71,360        66,855        67,746        66,468   
  

 

 

   

 

 

   

 

 

   

 

 

 


PACIFIC SUNWEAR OF CALIFORNIA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands)

 

     October 27,
2012
     January 28,
2012
     October 29,
2011
 

ASSETS

  

Current assets:

        

Cash and cash equivalents

   $ 23,809       $ 50,306       $ 8,280   

Restricted cash

     305         8,593         —     

Inventories

     137,347         88,740         152,249   

Prepaid expenses

     17,208         15,506         18,405   

Other current assets

     3,473         6,272         6,620   
  

 

 

    

 

 

    

 

 

 

Total current assets

     182,142         169,417         185,554   

Property and equipment, net

     131,217         149,716         158,157   

Other long-term assets

     34,625         35,998         31,725   
  

 

 

    

 

 

    

 

 

 

Total assets

   $ 347,984       $ 355,131       $ 375,436   
  

 

 

    

 

 

    

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

  

Current liabilities:

        

Accounts payable

   $ 67,336       $ 38,914       $ 89,572   

Other current liabilities

     65,097         68,369         39,133   
  

 

 

    

 

 

    

 

 

 

Total current liabilities

     132,433         107,283         128,705   

Deferred lease incentives

     15,427         17,681         22,483   

Deferred rent

     16,316         16,602         18,623   

Long-term debt

     74,645         73,910         28,692   

Other long-term liabilities

     25,832         26,558         26,554   
  

 

 

    

 

 

    

 

 

 

Total liabilities

     264,653         242,034         225,057   

Total shareholders’ equity

     83,331         113,097         150,379   
  

 

 

    

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 347,984       $ 355,131       $ 375,436   
  

 

 

    

 

 

    

 

 

 


PACIFIC SUNWEAR OF CALIFORNIA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 

     Three Quarters Ended  
      October 27,
2012
    October 29,
2011
 

Cash flows from operating activities:

    

Net loss

   $ (32,213   $ (68,330

Depreciation and amortization

     25,915        32,758   

Asset impairment

     4,073        12,829   

Non-cash stock-based compensation

     2,114        2,524   

Loss on disposal of property and equipment

     225        161   

Amortization of debt discount

     1,163        —     

Gain on derivative liability

     (3,672     —     

Changes in operating assets and liabilities:

    

Inventories

     (48,607     (56,548

Accounts payable and other current liabilities

     30,186        45,183   

Other assets and liabilities

     (805     (13,839
  

 

 

   

 

 

 

Net cash used in operating activities

     (21,621     (45,262

Cash flows from investing activities:

    

Capital expenditures

     (12,037     (10,165

Restricted cash

     8,288        —     

Proceeds from insurance settlements

     653        300   
  

 

 

   

 

 

 

Net cash used in investing activities

     (3,096     (9,865

Cash flows from financing activities:

    

Payments under credit facility borrowings

     (1,254     —     

Principal payments under mortgage borrowings

     (401     (375

Principal payments under capital lease obligations

     (511     (241

Proceeds from exercise of stock options

     386        313   
  

 

 

   

 

 

 

Net cash used by financing activities

     (1,780     (303
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (26,497     (55,430

Cash and cash equivalents, beginning of period

     50,306        63,710   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 23,809      $ 8,280   
  

 

 

   

 

 

 


PACIFIC SUNWEAR OF CALIFORNIA, INC.

SELECTED STORE OPERATING DATA

 

     October 27,
2012
    October 29,
2011
 

Stores open at beginning of year

     733        852   

Stores opened during the period

     3          

Stores closed during the period

     (14     (32
  

 

 

   

 

 

 

Stores open at end of period

     722        820   
  

 

 

   

 

 

 

 

     October 27, 2012      October 29, 2011  
     # of
Stores
     Square
Footage

(000s)
     # of
Stores
     Square
Footage

(000s)
 

PacSun Core stores

     601         2,330         699         2,705   

PacSun Outlet stores

     121         490         121         489   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stores

     722         2,820         820         3,194   
  

 

 

    

 

 

    

 

 

    

 

 

 


PACIFIC SUNWEAR OF CALIFORNIA, INC.

RECONCILIATION OF SELECTED GAAP MEASURES TO NON-GAAP MEASURES

(Unaudited, in thousands, except per share data)

 

     Third Quarter Ended     Three Quarters Ended  
     October 27,
2012
    October 29,
2011
    October 27,
2012
    October 29,
2011
 

GAAP gross margin

   $ 60,827      $ 55,379      $ 159,612      $ 135,908   

Store closure charges (gains):

        

- Markdown allowances

     1,775        —          1,775        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP gross margin

   $ 62,602      $ 55,379      $ 161,387      $ 135,908   
  

 

 

   

 

 

   

 

 

   

 

 

 

GAAP SG&A expenses

   $ 62,082      $ 68,414      $ 184,855      $ 193,211   

Store closure charges (gains):

        

- Asset impairments

     16        2,428        178        2,428   

- Lease terminations

     (61     216        130        287   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP SG&A expenses

   $ 62,127      $ 65,770      $ 184,547      $ 190,496   
  

 

 

   

 

 

   

 

 

   

 

 

 

GAAP income (loss) from continuing operations

   $ 948      $ (14,013   $ (32,213   $ (60,121

Store closure charges (gains), net of tax:

        

- Asset impairment

     10        1,529        112        1,529   

- Lease terminations

     (38     136        82        181   

- Markdown allowances

     1,117        —          1,117        —     

Derivative liability

     (5,558     —          (3,672     —     

Valuation allowance

     1,709        5,222        13,329        22,180   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP loss from continuing operations

   $ (1,812   $ (7,126   $ (21,245   $ (36,231
  

 

 

   

 

 

   

 

 

   

 

 

 

GAAP income (loss) from continuing operations per share

   $ 0.01      $ (0.21   $ (0.48   $ (0.91

Store closure charges (gains), net of tax:

        

- Asset impairment

     —          0.02        —          0.02   

- Lease terminations

     —          —          —          —     

- Markdown allowances

     0.02        —          0.02        —     

Derivative liability

     (0.08     —          (0.05     —     

Valuation allowance

     0.02        0.08        0.20        0.33   
  

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP loss from continuing operations per share

   $ (0.03   $ (0.11   $ (0.31   $ (0.56
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in calculation

     67,914        66,855        67,746        66,468   
  

 

 

   

 

 

   

 

 

   

 

 

 

ABOUT NON-GAAP FINANCIAL MEASURES

The accompanying press release dated November 29, 2012, contains non-GAAP financial measures. These non-GAAP financial measures include non-GAAP gross margin, non-GAAP SG&A expenses, non-GAAP loss from continuing operations and non-GAAP loss from continuing operations per share for the third quarter and first three quarters of fiscal 2012 and 2011, respectively, and non-GAAP loss from continuing operations per share guidance for the fourth quarter of fiscal 2012. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. These non-GAAP financial measures do not reflect a comprehensive system of accounting, differ from GAAP measures with the same names and may differ from non-GAAP financial measures with the same or similar names that are used by other companies. The Company computes non-GAAP financial measures using the same consistent method from quarter to quarter and year to year. The Company may consider whether other significant items that arise in the future should be excluded from the non-GAAP financial measures. The Company has excluded the following items from all of its non-GAAP financial measures:


   

Store closure charges (gains)

 

   

Derivative liability

 

   

Valuation allowance

The Company believes that these non-GAAP financial measures provide meaningful supplemental information regarding the Company’s operating results primarily because they exclude amounts that are not considered part of ongoing operating results when planning and forecasting and when assessing the performance of the organization, individual operating segments or its senior management. In addition, the Company believes that non-GAAP financial information is used by analysts and others in the investment community to analyze the Company’s historical results and in providing estimates of future performance and that failure to report these non-GAAP measures, could result in confusion among analysts and others and create a misplaced perception that the Company’s results have underperformed or exceeded expectations.