California Apparel News

Pacific Sunwear of California Inc. grew to 1,013 stores across the United States and reported a comparative-store sales increase of 3 percent during the first quarter, but Wall Street analysts still downgraded the stock.

Analysts from New York–based JP Morgan downgraded the stock from “neutral” to “underweight” in mid-March because they felt PacSun’s merchandisers had made a couple of fashion misses and they wondered if the retailer’s size would hamper earnings growth post-2006.

Liz Pierce, a retail analyst with the Los Angeles office of Sanders Morris Harris, also downgraded the stock. She lowered her recommendation from “strong buy” to “buy” in a research note published May 13. While she said she believed the brand was solid, she noted that cold weather and fashion misses, including neglecting to sell popular items such as capri pants and halter tops for women, had made for a sluggish quarter.

But Pierce said the future looked bright for PacSun because summer months, when teens typically shop for popular items such as boardshorts, play to the retailer’s strengths. She also noted that the company is able to react quickly to trends because it weaves looks such as cargo pants and bohemian skirts throughout its surf and skate assortment.

PacSun Chief Executive Officer Seth Johnson said the first quarter ended on a flat note. The company reported a 6 percent decrease in April’s comparable-store sales. “We’re not happy with the trend of business. March and April were flat,” Johnson said during a conference call with analysts on May 12.

Johnson blamed the company’s troubles on fashion misses and cold weather. “We expect to improve as soon as we get to warmer weather,” he said.

—Andrew Asch