There was a time when Wall Street couldn’t wait for the next big thing out of Anaheim-based Pacific Sunwear of California Inc.
Over the years, the teen clothing retailer built its name with its PacSun stores, which sell surf-and skateboard-inspired clothes from popular Orange County brands, including Huntington Beach-based Quiksilver Inc. and Irvine-based Billabong USA.
Later it opened chains to help drive growth. First demo,a group of shops selling hip-hop and urban-style clothes,then One Thousand Steps, a shoe store chain.
But Pacific Sunwear’s golden touch with PacSun didn’t exactly translate to demo and One Thousand Steps. Demo was a success for a while. But the company got hit when fads changed and the chain lost its groove with buyers.
Now Pacific Sunwear finds itself going back to its surf roots to recapture its former mojo.
Wall Street is glad.
“PacSun remains the de facto gorilla in the branded surf and skate lifestyle segment,” said Jeff Van Sinderen, analyst at B. Riley & Co.
Pacific Sunwear is in the process of closing its nine One Thousand Steps stores and closing or selling off demo shops as part of a turnaround bid.
The moves mean Pacific Sunwear will have a better chance to focus on fixing things and growing sales at PacSun stores, which are driving the bulk of its business, Van Sinderen said.
In November, same-store sales at PacSun rose 7%, while demo saw sales drop 30%.
Same-store sales,sales at stores open at least a year,are a key indicator of a retailer’s performance as they measure growth at existing stores rather than newly opened ones.
PacSun’s total November sales were $110 million, up 7.6%, and $10 million at demo, down 27%.
The company has spent the past year tweaking its merchandise offering at PacSun under Chief Executive Sally Frame Kasaks, who started as interim chief and took the position permanently a few months ago.
That’s meant bringing in new brands, nixing some shoes and accessories, adding a bigger selection of PacSun’s own labels, and streamlining stores so they’re easier to shop in.
The company refreshed some 50 PacSun stores this year, and plans to do another 75 annually.
Mitch Kummetz, analyst at Robert W. Baird & Co., said so far “Pacific Sunwear seems to be heading in the right direction.”
Still, there’s work to do.
“Pacific Sunwear has plenty of work ahead of itself to achieve its long-term productivity and operating margin targets,” Kummetz said. “Growth isn’t going to come from new stores.”
It’s expected to come from improving sales and profits, he said.
Changes are beginning to pay off.
Particularly with girls,industry shorthand for teen girls and young women,who have been helping to drive clothes sales and are a big opportunity for the company, said Christine Chen, analyst at Needham & Co.
At the end of 2006, girls accounted for 29% of clothes sales and guys were 37%, Chen wrote in a recent report.
“Long term, we think PacSun could become a 50/50 girls/guys business,” Chen said.
To help lure more girl shoppers, Pacific Sunwear has been revamping its stores.
They are cleaner and brighter, with lighting and fixtures to enhance merchandise presentation, Chen said.
PacSun stores are also larger and less cluttered, she said.
“We believe that the changes have been well received by customers and traffic has increased in the new store formats,” Chen said.
Pacific Sunwear has also expanded its assortment of garb for girls by growing its own labels Lilu, Tilt, Nollie and Kirra Girl, Chen said.
PacSun gets more profits selling its own brands and has the flexibility to tweak its selection when needed, she said.
“When a product is selling well in stores, Pacific Sunwear can quickly adjust merchandise with shorter lead times by having control over designs,” she said.
Kasaks said in a recent earnings call that the company will continue to “focus on enhancing the appeal and shopability” of PacSun stores.
New merchandising displays give stores the ability to improve “product flow and deliver merchandise” that’s new and fashionable on a monthly basis, Kasaks said.
“This has been especially important for our junior customer, who shops more frequently than our guy customer,” she said.
In the fall, PacSun launched denim for girls under its Bullhead brand.
“Driven by new styles, fits and washes, we have achieved significant growth in denim,” Kasaks said.
The company continues to tweak its selection of accessories and shoes, which have been challenging.
Pacific Sunwear said it’s nixing or reducing shoes in some of its stores and adding more clothes. Sneakers have begun to sell well for boys and girls, Kasaks said.
The company is also reducing accessories and shoes to about 25% of its offerings, versus 35%.
“We remain confident about the direction of the PacSun business,” Kasaks said. “Our initiatives are beginning to pay off, and we are starting to gain momentum with our merchandise assortments.”
