Pacific Sunwear (PSUN) – $4.89 -- recently lowered its Q4 2010 EPS guidance to an appalling loss of $0.34 to $0.31 when utilizing a -37% tax rate. No real surprise here, as CEO Gary Schoenfeld and CFO Michael Henry have an abysmal earnings guidance track record.
Therefore, we’re forecasting an EBIT margin of approximately -8.9% this year (click here for PDF model). While the company’s management inexplicably does not break out non-recurring items (as we wrote about here), we have, and those items are reflected in our -8.9% EBIT margin estimate.
It’s possible that -8.9% represents the worst business model in specialty apparel retail. While sales-per-square-foot have declined to approximately $275 from $360 in FY 2007, it’s clear that there are bigger issues here. Merchandise margins have likely imploded during that same time frame.
The company has hired a new CEO and new merchants, but they’ve done nothing since their arrival to suggest that they have a clue as to how best to turn this around. The fact is that PSUN’s management team, in our view, is possibly the worst in specialty apparel. When you’re faced with a “low bar” and you’re still materially underperforming your peers on the top-line, that’s really all investors need to know. Case closed. End of story.
That said, we’re curious. Do you know of another retailer with a worse EBIT margin in FY 2010 than -8.9%? We don’t.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.