At first blush, Seth Johnson, incoming chief executive of Anaheim-based Pacific Sunwear of California Inc., seems to be cut from the same cloth as his predecessor, Greg Weaver.
They’re both veteran retailers and sticklers for detail. They’re good at managing costs. And they walk malls weekly to stay on top of trends and the competition.
“Greg has a great record here,” said Johnson, who hails from Abercrombie & Fitch Co. “It’s not broken.”
And neither executive is from the California coast, the inspiration for much of the teen clothes sold at PacSun stores. Johnson grew up in Minneapolis. Weaver is a Connecticut boy.
But Johnson, who joined in November as chief operating officer and is set to become chief executiyve in April, could differ with Weaver in one way. He may not be as chatty with Wall Street.
“My reputation at Abercrombie & Fitch was one of not producing as much details to Wall Street,” Johnson said. “People always want to know what the marketing plans are, what items are selling the best. A lot of that is what you don’t want the competition to get.”
That could be a contrast to Weaver, who was forthcoming with details, according to analysts.
“Greg is a very clear communicator,” said Andrea Newell, analyst for Wells Fargo Securities in San Francisco.
As for Johnson, “he’s very savvy about knowing how the competition will look at the data coming out of PacSun,” she said. “But as an analyst you always want more information.”
Johnson said he plans to work the malls more than Wall Street.
“You have to be in the malls every week,” he said. “It is very important that you spend a lot of time in the stores.”
PacSun has been on a tear for the past two years. The company runs nearly 1,000 stores that sell surfwear and other clothes from Orange County designers as well as hip-hop fashions at its d.e.m.o. chain.
As other retailers lagged last year, PacSun kept up a solid growth pace. For the nine months through October, sales were up 19% from the year-ago period to $849 million. Net income was up 44% to $66 million.
The company’s fiscal year ends Jan. 30 with year-end results due in early March. Analysts expect the company to end the 12 months with $1.23 billion in sales, 23% higher than a year earlier. Net income is projected at $100 million, up 25% from a year earlier.
As of last week, PacSun counted a market value of $1.7 billion.
But Johnson takes over at a pivotal time. PacSun still is a darling among retailers, but the company’s heady growth of early 2004 has eased.
In November, PacSun’s total sales grew 13.4%, while sales at stores open at least a year were up just 2.7%, the slowest rates for the company last year.
PacSun’s 2004 peak came in February when it saw 27% total sales growth and 14% same-store sales growth.
For December, PacSun reported total sales growth of 16.4%, helped by store openings. Same-store sales growth beat expectations at 5.3%. But the pace lagged December 2003, when PacSun saw total sales grow 23% and 12% for same-store sales.
Boosting profits amid slower sales growth is one of the things Johnson does well, according to analyst Newell. As sales growth moderated in recent years at Abercrombie & Fitch, where Johnson was chief operating officer, profits kept steadily growing.
“He was very good at managing the cost side,” Newell said. “They got to be a very lean organization under his tenure.”
But PacSun is different than Abercrombie, which Newell said faltered because it didn’t have clothes that were in demand. PacSun still has plenty of room to grow, she said.
Johnson’s growth plan is a page from Weaver’s book: more stores, added clothes for girls and possibly a new chain of stores.
“I think he will have no problem being the name and the face behind PacSun,” said Newell, who rates PacSun’s stock a “buy” and doesn’t hold any shares. “I was worried, but I’m pleased.”
Johnson doesn’t mind comparisons to Weaver, who joined PacSun in 1987 and turned it into a powerhouse selling surfwear to Middle America. He said he and Weaver, who plans to stay on as executive chairman, are more alike than different.
“I think that’s why we developed a rapport so quickly,” Johnson said. “We think in a similar way.”
Like Weaver, Johnson described himself as a nuts-and-bolts guy. Weaver signed every store lease himself and even quizzed teens on their tastes. Similarly, Johnson said, “I like to delve down in the details of the business.”
After spending 12 years at Abercrombie, Johnson said he decided to “retire” in early 2003 and took the summer off, coaching tennis and spending time with his wife and two daughters.
“It was a great run,” he said of his time at Abercrombie. “I sort of got tired of it.”
Johnson said he had no plans to return to the corporate world, until he got a call from Weaver.
“We hit it off,” he said.
The prospect of running the show at PacSun appealed to Johnson, he said.
“I wasn’t interested in working for a company unless I was going to be the No. 1 person,” Johnson said.
Weaver is set to work out of PacSun’s headquarters a couple of days a week.
The company is targeting 1,400 stores by 2007, up from 990 now. The projection includes about 1,000 PacSun stores, up from 744 now, and 400 d.e.m.o stores, up from 162 now.
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D.e.m.o. in Santa Ana: chain is smaller, fast-growing |
D.e.m.o. sells urban clothes including Apple Bottoms and Sean John. The chain, started in 1998, was Weaver’s bid to co-opt the only real threat to surfwear’s dominance among teens.
The move expanded the market for PacSun. A PacSun store and a d.e.m.o. could sit side by side in a mall without taking business from each other, Johnson said.
D.e.m.o. should grow at a faster clip because there are fewer of them, according to Johnson. This year, PacSun plans to open about 120 stores, including 40 d.e.m.o. stores, he said.
PacSun differs from Abercrombie in that it relies on clothing designers, mostly from OC, to drive the bulk of its sales. The company does have its own brands, Tilt and Kirra, but clothes from big names such as Huntington Beach-based Quiksilver Inc. and Irvine’s Billabong USA dominate.
That allows PacSun buyers to pick and choose what’s hot. The strategy cuts down on the odds of PacSun being saddled with unpopular clothes, a predicament that’s nearly done in Wet Seal Inc. of Foothill Ranch.
Johnson called Wet Seal “a lesson to everybody in the business.”
The flipside: PacSun scarifies a bit of profit that Abercrombie realizes from selling its own clothes. Abercrombie had a 40% gross margin in the third quarter, compared to 36% for PacSun.
Abercrombie’s Hollister chain is one of PacSun’s main rivals. It’s a chain Johnson helped build during his 12 years at Abercrombie.
Abercrombie’s growth is indicative of the ups and downs of the fashion industry. While Abercrombie & Fitch stores have cooled, Hollister is ramping up.
PacSun has had its share of ups and downs, as in late 2002.
A retailer’s merchandisers are key, according to analyst Newell. Johnson knows how to run things, she said, but isn’t going to be picking out colors.
“The retailer can lead (a trend) but they can’t invent it from nothing,” she said. “It’s a cultural thing.”
Trends also have to be interpreted correctly, Newell said. The gangsta trend proved a mistake for retailers, she said.
“The market wasn’t there,” Newell said.
So what’s in? Distressed jeans with a lot of holes, Newell said. The more, the better. The preppy look still is popular, she said.
As for d.e.m.o., the chain takes its cues from MTV, Newell said.
Surf, which has evolved from beach clothes to an entire genre of casual and sportswear, won’t go out of style, according to Johnson. Styles will evolve further, and PacSun will have to stay on top of changes, he said.
“We’re not really selling to real surfers,” Johnson said. “The whole surf-skate lifestyle is cool to a kid who lives in Minnesota, Ohio and Alaska.”
Right now, 55% of PacSun’s sales are to guys. But sales to girls and young women are surging with room for growth, Johnson said. The average for a mall store is for females to make up two-thirds of sales, he said.
Another growth prospect: a new chain of stores.
“We’ll need another concept,” Johnson said.
True to reputation, Johnson wasn’t forthcoming with details. He did say the company could look to open a chain of mall stores, doing something the company already is good at.
Even so, Johnson said he hasn’t seen any glaring fixes that need to be made at PacSun. Business has to evolve over time, he said.
“You just don’t turn things upside down,” he said.
