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Pacific Sunwear Off on Downgrade

Shares of Anaheim-based Pacific Sunwear of California Inc. took a hit on Tuesday after an analyst downgraded the mall retailer’s stock, saying the company is struggling to shed clearance items and faces increased competition.

The company’s shares closed down more than 10% Tuesday on a market value of about $440 million.

Pacific Sunwear runs 938 PacSun mall and outlet stores that sell clothes inspired by surfing and skateboarding.

The slump in Pacific Sunwear’s stock comes after MKM analyst Linda Tsai downgraded her rating on the company from “neutral” to “sell” in a research note.

Pacific Sunwear is having trouble getting rid of clearance merchandise while its fall products lack “newness,” Tsai wrote.

“Clearance racks remain full and closely packed, suggesting items may need additional markdowns to sell through,” Tsai wrote. “More worrisome is that the new incoming items do not appear very different from the items already on clearance.”

The company’s “modest discounts” on its clearance items have had “little impact” on shrinking inventory, according to Tsai.

Pacific Sunwear also faces stiff competition from Washington-based Zumiez Inc., which sells unique brands of clothing including RVCA and Shepard Fairey’s Obey, she wrote.

“Zumiez carriers a greater selection of brands that are unique to the mall, which could draw more of the core skate customer to its stores rather than PacSun,” Tsai wrote.

Pacific Sunwear is working on a turnaround after closing a chain of stores selling urban-style clothes and a small chain of shoe stores earlier this year.

Like other retailers, it faces a tough market as the slowing economy and high prices for everyday items have cut shoppers’ demand for clothes.

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