Baird/PSUN Reports Q1 in Line; FY08 Guidance Below Expectations

pacsun.gifOFFICIAL PRESS RELEASE – PSUN reported Q1 EPS that was in line with its pre-announced results. The company also lowered its FY08 guidance and revised its comp outlook for the year. Neither of these changes comes as a surprise, although we didn’t expect PSUN to revise either as much as it did. But with the stock having sold off again in recent weeks, we still believe there is value in these shares.

* Pacific Sunwear reported non-GAAP Q108 EPS loss of $0.10, versus
flat last year. This compares to our estimate and consensus of a
loss of $0.10, and guidance of a loss of $0.10-$0.11.

* Sales declined 0.5% to $266.8 million on a 1% comp decrease.
Moreover, operating margin fell 400bp, as many of the company’s
expense items de-leveraged versus sales.

* For FY08, the company is lowering EPS guidance from $0.73-$0.77 to
$0.59-$0.64. Consensus is $0.68. This revised guidance is based on
-3%-to-flat comp for Q2, and a flat comp for the back half of the
year. Based on PSUN’s revised guidance, we are lowering our FY08
EPS estimate from $0.73 to $0.60. This is based on a -1% comp for
the year.

* PSUN commented that, given its more conservative outlook, it is
identifying opportunities to reduce and defer expenses in a manner
appropriate with the current environment. The company also
mentioned that not all of the potential cost savings opportunities
are baked into the existing guidance.

* For Q208, PSUN is guiding to EPS of $0.03-$0.08, based on
-3%-to-flat comp. Based on PSUN’s guidance, we are lowering our Q2
EPS estimate from $0.16 to $0.04. We are now modeling a -2% comp
for the quarter.

* Our new price target is $13, based on a mid-teens multiple of our
forward two-year EPS estimate of $0.84.