Pacific Sunwear of California, Inc. announced today that net sales from continuing operations for the third quarter of fiscal 2014 ended November 1, 2014, were $212.3 million versus net sales from continuing operations of $202.8 million for the third quarter of fiscal 2013 ended November 2, 2013. Comparable store sales for the third quarter of fiscal 2014 increased 4 percent. The company ended the third quarter of fiscal 2014 with 620 stores versus 635 stores a year ago.
On a GAAP basis, the company reported a loss from continuing operations of $0.5 million, or 1 cent on a diluted per share basis for the third quarter of fiscal 2014, compared to income from continuing operations of $17.7 million, or 24 cents per diluted share for the third quarter of fiscal 2013. The loss from continuing operations for the company's third quarter of fiscal 2014 included a non-cash gain of $4.9 million, or 7 cents per diluted share, compared to a non-cash gain of $23.4 million, or 31 cents per diluted share, for the third quarter of fiscal 2013 related to the derivative liability that resulted from the issuance of the Convertible Series B Preferred Stock (the "Series B Preferred") in connection with the term loan financing the company completed in December 2011.
On a non-GAAP basis, excluding the non-cash gain on the derivative liability, other one-time charges, and assuming a tax benefit of approximately $1.9 million, the company would have incurred a loss from continuing operations for the third quarter of fiscal 2014 of $2.2 million, or 3 cents per diluted share, as compared to a loss from continuing operations of $3.5 million, or 5 cents per diluted share, for the same period a year ago.
"We were very pleased with our Q3 comp store performance, inventory productivity and continued improvement in non-GAAP EPS," said Gary H. Schoenfeld, President and Chief Executive Officer. "With eleven straight quarters of positive comp stores sales, I believe that our elevated merchandising assortments featuring a select number of leading lifestyle brands is resonating with customers and moving us even further toward our goal of establishing the new PacSun as one of the leading specialty apparel retailers for 17-24 year-olds."
Financial Outlook for Fourth Fiscal Quarter of 2014
The company's guidance range for the fourth quarter of fiscal 2014 contemplates a non-GAAP loss per diluted share from continuing operations of between $(0.17) and $(0.12), compared to $(0.17) in the fourth quarter of fiscal 2013.
The forecasted fourth quarter non-GAAP loss from continuing operations per diluted share guidance range is based on the following assumptions:
Comparable store sales from flat to +4 percent;Revenue from $218 million to $227 million;Gross margin rate, including buying, distribution and occupancy, of 21 percent to 24 percent;SG&A expenses in the range of $61 million to $65 million; andApplicable non-GAAP adjustments are tax effected using a normalized annual income tax rate.The company's fourth fiscal quarter of 2014 guidance range excludes the quarterly impact of the change in the fair value of the derivative liability due to the inherently variable nature of this financial instrument.Discontinued Operations
In accordance with applicable accounting literature and consistent with the company's financial statement presentation in its fiscal 2013 annual report, the company has reclassified the results of operations of its closed stores as discontinued operations for all periods presented, as applicable.
Derivative Liability
In fiscal 2011, as a result of the issuance of the Series B Preferred in connection with the company's $60 million senior secured term loan financing with an affiliate of Golden Gate Capital, the company recorded a derivative liability equal to approximately $15 million, which represents the fair value of the Series B Preferred upon issuance. In accordance with applicable U.S. GAAP, the company has marked this derivative liability to fair value through earnings and will continue to do so on a quarterly basis until the shares of Series B Preferred are either converted into shares of the company's common stock or until the conversion rights expire (December 2021).
