ICR Xchange Summary: PacSun

adamsullivan

• January 14 2009
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Today, the annual ICR Xchange conference was held in Dana Point, California, at the luxurious St. Regis Monarch Beach Resort. Transworld Business was on-site and sat in to a few of the summaries that were pertinent to our industry. Companies provided some information on how 2008 went, and their focuses and predictions for 2009. Here’s a list of the highlights:

CEO Sally Frame Kasaks was losing her voice, but she came out with a banger of a Mark Twain quote: “The rumors of our death have been greatly exaggerated.” She highlighted the biggest achievements of 2008, and reminded us that skinny jeans and v-necks killed it at retail.

2008 Achievements

• Closed DEMO division to focus on core PacSun Business
• Exited low-margin footwear category
• Exceeded apparel penetration goal of 80 percent
• Met apparel mix objective of 50/50 Juniors to Young Mens
• Consolidated distribution centers into Olathe, KS resulting in improved operating efficiencies and productivity
• Grew PacSun.com sales by 46 percent
• Sold Anaheim distribution center in Q4

2008 Product Achievements YTD

• Total Apparel Same-Store Sales grew by 10 percent and accounted for 83 percent of sales versus 71 percent of sales during the same period last year
• Juniors Apparel Same Store Sales grew by $80 million or 21 Comp points
• Juniors Accounted for 51 percent of apparel sales with 53 percent proprietary penetration
• Young Mens accounted for 49 percent of Apparel sales with 27 percent proprietary penetration

PacSun.com

• YTD 2008 PacSun.com sales increased 46 percent to $42 million
• 2007 PacSun.com grew 48 percent to $30 million
• PacSun.com exclusive offerings
• Established social networking presence on Facebook, Myspace, and Youtube

Kassaks closed with an overview of PacSun’s near-term objectives, which include tighter inventory control, and growth in their proprietary brands (Bullhead denim, et al.). There will be a rebalanced assortment focused on apparel. The example she provided was RVCA, a brand that killed it in 20 PacSun stores, and, as a result, will now go to all PacSun stores.

From there, CFO Mike Henry took the group through a financial overview.

Holiday Results (Nov + Dec)

• Total company sales decreased 8%
• Same-store sales decreased 10%
• Apparel same-store sales increased 7%
  • Juniors increased 20%
  • Young Mens Decreased 3%
• Inventory expected to be down 20% per square foot at fiscal 2008 year end

Pacific Sunwear Credit Facility

• Company entered into five year $150 million asset backed credit facility in Q1, 2008
• Primary syndicate consists of JP Morgan, Back of America, and Wells Fargo
• No financial covenants unless company draws beyond 90% of total availability
• No direct borrowings outstanding today, none expected at fiscal 2008 year end

2009 Capital Expenditures

• Preliminary CapEx for Fiscal 2009 expected to be approximately $30 million versus $80 to $85 million in fiscal 2008
• Fiscal 2009 CapEx includes investments in stores, merchandising systems, E-Com and distribution capabilities

2009 Free Cash Flow

• Fiscal 2009 depreciation of $75 million
• Fiscal 2009 CapEx of $30 million
• $45 million of free cash flow in 2009 before consideration of operations

3 to 5 Year Goals

• Mid-single digit operating margins
  • improve merchandise margins
    • stronger focus on apparel
    • stabilize markdown activity through inventory management
  • optimize real estate portfolio
  • reduce expenses
  You can listen to Webcasts of the presentations HERE.