Pacific Sunwear
Pacific Sunwear (PSUN): A company operating two mall based retail chains: PacSun and d.e.mo. PacSun is a nationwide surf and skate themed chain with about 900 locations comprising approximately 3.25 million square feet. d.e.m.o. is a hip hop themed chain with about 200 stores comprising approximately 500,000 square feet. Both chains target the “teen” market (specifically, guys and girls ages 12-24).
Pacific Sunwear’s total sales consist of approximately 67% name brand sales and 33% proprietary brand sales. Pacific Sunwear’s two largest individual branded vendors are Quiksilver (ZQK) and Billabong.
The company's total sales consist of approximately 65% apparel, 20% accessories, and 15% footwear. Pacific Sunwear has always sold more guys’ apparel than girls’ apparel. In recent years, the gap has narrowed slightly. Currently, apparel sales consist of approximately 55% guys’ apparel and 45% girls’ apparel.
Pacific Sunwear will launch a new concept in April. The company plans to open 8-10 One Thousand Steps stores during the first half of 2006. Management believes the chain could grow to 600 – 800 stores. At an average size of 2,500 square feet, that would mean the chain could grow to between 1.5 million and 2 million square feet.
Upon announcing the new concept (last year), Pacific Sunwear CEO Seth Johnson made the following statement:
Footwear has been a highly successful part of our assortment in PacSun stores. One Thousand Steps will enable us to leverage our brand management skills in what we believe is an underserved market. This new concept gives us an exciting growth vehicle that adds a new and distinct customer base to our business. Combined with out existing PacSun and d.e.m.o. businesses, we will have the opportunity to achieve significant sales and profit growth in the future.
Pacific Sunwear has consistently earned high returns on equity while employing very little debt. Over the past 10 years, the company has achieved returns on equity of about 17%. Shares of Pacific Sunwear currently sell at a relatively modest price-to-sales ratio of 1.2. The stock’s (trailing) P/E ratio is about 14.
On March 9, 2006 I wrote an analysis of Pacific Sunwear (PSUN). In it, I suggested the annual return on PSUN stock over the next ten years could be as much as 13%.
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