California Apparel News

A Wall Street analyst lowered her stock recommendation from buy to hold for Pacific Sunwear of California Inc. in a June 29 research note, just as the highly successful retailer of surf and skate clothes prepares for its crucial Back-to- School season, which begins in mid-July.

Liz Pierce, in the Los Angeles office of the Sanders Morris Harris Group Inc., lowered her recommendation because she sees a turbulent period ahead for Pacific Sunwear, based in Anaheim. It started with a 2.6 percent decline in the retailer’s same-store sales in May. On July 6, the company reported a same store sales decline of 2.7 percent for June.

She also predicted the retailer’s same-store sales for its fiscal second quarter would be negative. This forecast clashed with the company’s guidance of positive same-store sales in the low- to midsingle- digit range.

“PacSun could not drive positive sales during the company’s peak Spring/Summer season,” Pierce wrote in the June 29 note. Pacific Sunwear did not answer calls requesting comment on the research note or its recent same-store sales performance.

Pierce’s lack of confidence arrived just a few months after the April 1 retirement of Greg Weaver, the company’s executive chairman. As its chief executive from 1996 to 2005, he helped guide PacSun’s heady growth to become a national retailer, with more than 1,100 stores in 50 states and Puerto Rico. Weaver also helped to develop the mall retailer’s urban clothing store concept, called d.e.m.o., which carried hip-hop-themed clothes for youths ages 16–24, as well as One Thousand Steps, a footwear boutique.

Weaver’s departure capped a changing of the guard, where executives such as Tim Harmon, PacSun’s president and chief merchandising officer, also retired. He left June 15, 2005. The retailer’s current chief executive, Seth Johnson, leads a company with a management team staffed by new personnel, instead of the group that had shepherded the company’s growth in the past decade.

The new team should not be judged too harshly for recent comparative- store declines, said Jeffrey Van Sinderen, a retail analyst for Los Angeles–based financial services company B. Riley & Co. “The prior team at PacSun was stellar. Their business was stellar,” Van Sinderen said, noting that it’s hard to match or exceed the company’s previous spectacular same-store sales results.

Pacific Sunwear also is faced with a different set of challenges in the upcoming years, according to Johnson, who was interviewed in May at the SIMA Surf Summit, an annual surf industry convention held at Cabo San Lucas, Mexico.

Johnson said the retailer would not build a large number of new stores in the future. Instead, Pacific Sunwear would concentrate on building retail traffic by improving the consumer’s experience at its stores.

Pierce wrote in her research note that many PacSun categories remain strong, such as boardshorts, sandals and swimwear. But sneakers and juniors sales were weak, which hurt the total results. Pierce expected that Brad Cunningham, the company’s general merchandise manager, would eventually improve the performance of the surf and skate retailer. —Andrew Asch