We all know being involved in retail means very risky business. If you're teen retailer Pacific Sunwear of California, Inc. (PSUN), it's an even riskier business. Pacific Sunwear is easily one of the most volatile stocks in the market. Over the past 52 weeks, the stock has traded between $1.17 and $2.73, making all sorts of different runs up and subsequently, back down. As of 2/19/13, PacSun was trading at $2.28 -- a 27% premium to the $1.67 price in just November. The turbulence and tribulations of this stock have been equally paired with bright spots and high notes. In the last year alone, PacSun has gone from $1.85 to $2.50, then from $2.50 to $1.20. It didn't stop there, as it went from $1.20 to $2.70, and from $ 2.70 to $1.36. Finally, PacSun has made another run up from $1.36 to $2.20. Pacific Sunwear has been the definition of a roller coaster stock, and its investors sure have been on a wild ride.
Pacific Sunwear of California, Inc. operates as a specialty retailer for teens and young adults. PacSun primarily focuses on the action sports, fashion, and music influences of the California lifestyle. It sells its own company produced and manufactured clothes, as well as third-party brands. PacSun also manufactures and sells clothing accessories and footwear. PacSun operates a mall-based chain of retail stores under the brand names of Pacific Sunwear and PacSun; and an e-commerce website: www.pacsun.com. As of November 29, 2012, Pacific Sunwear operated 722 stores in the United States and Puerto Rico. Pacific Sunwear of California, Inc. was founded in 1982, and is headquartered in Anaheim, California.
Pacific Sunwear really took a hit in 2008 as did the company's stock, plummeting from $13.73 to $1.06 in just a six-month period. This monumental decrease was due in large part to a nationwide pullback in consumer retail spending, coupled with widening losses and shrinking revenues. Additionally, poor inventory management and increased competition further dampened the already depressed stock. To make matters even worse, PacSun's competitors stepped their game up while Pacsun took a step back. Pacific Sunwear still is faced with increasing competition. Zumiez (ZUMZ) has seen experienced its own volatility, as it has now settled around $21 a share after reaching highs near $40 last year. Quicksilver (ZQK) has seen a tremendous rally from its stock in the last year alone. In June of 2012, Quicksilver was at $2.33; today, it trades at a solid $6.30 per share. Tilly's (TLYS) entered the market as an IPO just less than a year ago, and has fluctuated between $14 and $17 per share.
There is no denying that there has been an overwhelming amount of negative news for PacSun in recent years. All of this negative news has been reflective of the stock price falling from healthy highs of $28 in 2005. Clearly, PacSun is astronomically far away from its success eight years ago. However, there has been recent positive news, and it has helped to spark the recent run-up from $1.40 to $2.30 in the last three months alone.
On February 7, 2013, Pacific Sunwear reported an increase in holiday sales over the year prior. PacSun's fourth fiscal quarter same-store sales through January 6, 2013 increased 1% on a continuing operations basis. Additionally, management said the guidance previously given for Q4 2012 should be at the low end of the projected loss: "The Company expects non-GAAP loss per share from continuing operations to be at the lower end of its previously announced guidance range of $(0.09) to $(0.17) compared to $(0.20) in the fourth quarter of fiscal 2011." This would represent a great improvement from the year prior. On March 12, 2013, Pacific Sunwear will announce its earnings for the fourth quarter of 2012.
Pacific Sunwear has seen significant online growth via its e-commerce website: pacsun.com. In fact, on its 2012 Q2 earnings call, management said, "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". This tremendous growth has been spearheaded by the company's new "Golden State of Mind" or "GSOM" initiative, which focuses on the California lifestyle. Additionally, higher margins and an increased ability to properly manage inventory levels have helped on both the top and bottom line for PacSun.
On Friday, February 8, 2013, Pacific Sunwear's stock rallied over 7% on the news that the company revealed a new nationwide collection inspired and designed by the Kendall and Kylie Kardashian sisters. This past year, PacSun has demonstrated consistent improvements in earnings. PacSun has shown some new bright spots and some new signs of life. In fact on February 14, 2013, PacSun was upgraded. The stock is now a Buy from Neutral at DA Davidson, which notes an improved merchandising mix and potential acceleration in same-store-sales. With the new Buy rating, DA Davidson's target is also taken up to $3.50 from $2.20.
Pacific Sunwear is admittedly one of the most risky stocks in the market. However, if it is able to continue posting same-store-sales increases and increased earnings, its stock will most likely also show increases. There is no denying that Pacific Sunwear has made many positive transformations recently, and has been managed more carefully, but it still has a long way to go until it's shining again.
Disclosure: I am long PSUN.