Action-Sports Cos. Have Tough Third Quarter, Lower Full-Year Expectations
The third quarter wasn’t particularly kind to publicly held action-sports brands and retailers. Retailers Pacific Sunwear of California and Zumiez released their third-quarter earnings in November, and while the news wasn’t all bad, it did little to assuage investors’ fears. On the manufacturing side, Volcom and Quiksilver saw their own share of trouble.
Pacific Sunwear announced total sales of $323.6 million for the third quarter—a 5 percent decrease from the third quarter of 2007, which saw sales of $341.9 million. Total company same-store sales for the quarter were down 7 percent in comparison with the same period last year. PacSun also recorded a loss of $3.5 million from continuing operations during the quarter. In 2007, PacSun recorded an income from continuing operations of $17.1 million during the same period.
In a statement, Sally Frame Kasaks, the retailer’s chief executive, said the “well-reported” decelerated consumer spending during September and October took a toll on PacSun. “To strengthen our financial position in this economic downturn, we are focused on reducing our inventory, capital expenditures and other expenses,” she said. For the year so far, total sales at the retailer are off by 2 percent from last year, with same-store sales falling 3 percent.
“Given the significant downturn in the economic climate in recent months, the company is updating its fiscal 2008 fourth-quarter earnings forecast,” a statement by the company said. “As a result of additional promotional activity and assuming a same-store sales decrease in the negative high-single-digit range for the fourth quarter of fiscal 2008, the company currently expects to report a fourth-quarter loss of $0.03 to $0.08 per diluted share, including an estimated gain of approximately $0.11 per diluted share from the previously announced sale of its Anaheim, [Calif.], distribution center.”
On Nov. 25, the company announced insider buying of stock. On Nov. 24, Kasaks purchased 200,000 shares at prices from $1.10 to $1.14, bringing her stake to 390,000 shares. On the same date, Director Grace Nichols bought 10,000 shares at $1.13. PacSun’s stock, which has a 52-week high of $16.95 per share, has suffered, losing more than 90 percent of its value since the beginning of 2008.
Everett, Wash.–based Zumiez, PacSun’s competing core retailer, also lowered its sales and earnings expectations for the 2008 fiscal year. While its third-quarter net sales increased nearly 8 percent to $112.2 million, same-store sales fell 5.8 percent for the quarter. The company posted a net income for the quarter of $6.8 million, compared with $8.1 million in the third quarter of the prior fiscal year.
“While our third-quarter earnings performance was in line with expectations, we did experience sales and product margins during September and October that were below our year-to-date trends through August,” said Rick Brooks, chief executive officer, in a statement. “Given the recent economic events and their impact on the retail industry, namely a slowdown in traffic levels and a heightened promotional environment, we recently adopted lowered sales and earnings expectations for the remainder of 2008.”Mixed Results for Manufacturers
Huntington Beach, Calif.–based surf giant Quiksilver hit an unfortunate milestone on Nov. 21, when its stock dipped below the $1 mark, trading for as low as 80 cents per share. The dip came after Moodys.com—a corporate finance, banking, managed-funds and risk-management company—downgraded Quik’s credit rating based on its $745 million worth of long-term debt. Quik, which sold its languishing Rossignol Group division earlier in November for $50 million, said it would put proceeds from the sale toward paying down its debt.
Costa Mesa, Calif.–based Volcom saw total consolidated revenue jump 23 percent to $111.7 million in the third quarter compared with the previous fiscal year, and total revenue was up 12 percent to $72.8 million for the same period. Still, the surf/skate brand is lowering its fourth-quarter and 2008 full-year outlook. For the fourth quarter, Volcom now expects total consolidated revenues to hover between $69 million and $71 million, bringing its expected consolidated revenue for the full year to between $333 million and $335 million.
