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Bull of the Day: PacSun


Pacific Sunwear of California, Inc. (NASDAQ: PSUN) is still expected to lose money this year and next year but is the worst over? It is a Zacks Rank #1 (Strong Buy) thanks to rising earnings estimates.

Pacific Sunwear (“PacSun”) operates 620 stores across the United States which carries clothes, accessories and footwear focusing on the California lifestyle. It also operates a web site.

It operates in the dreaded teen and young adult category, however, which has extremely fickle customers and is also found mostly in shopping malls, which have been struggling.

PacSun Beat in the Fiscal Third Quarter

On Dec 3, PacSun reported fiscal third quarter 2014 results and beat the Zacks Consensus by 2 cents. Earnings were a loss of 3 cents compared to the Consensus of a loss of 5 cents.

Revenue, however, rose to $212.3 million from $202.8 million in the year ago quarter.

The company believes it is starting to see the fruits of its turnaround plan as comparable store sales growth and inventory remain solid.

Comparable store sales rose 4%. It was the 11th straight quarter of comparable store sales growth.

Earnings Headed in the Right Direction

PacSun hasn’t been profitable since 2008. But after losing $0.92 in 2011, it has slowly been chipping away at the losses.

After the third quarter results, the analysts moved to raise fiscal 2014 and fiscal 2015 estimates, with 5 analysts raising for 2014 and 4 for 2015.

While the company is still expected to see a loss in fiscal 2015, it is heading in the right direction with earnings expected to jump 42% in fiscal 2015.

F2012: loss of 48 cents
F2013: loss of 34 cents
F2014 expected: loss of 29 cents
F2015 expected: loss of 17 cents

Shares Still Near 5-Year Lows

Not surprising, given that it’s in the difficult teen segment and it hasn’t made money in years, shares of PacSun haven’t participated much in the retail rally.

 

But if you’re looking for a retail turnaround play, then PacSun is one to keep on your short list.

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