Pacific Sunwear 35th Annual Bank of America Consumer Conference
Safe Harbor Disclaimer This presentation will include forward looking statements within the meaning of the safe harbor provisions of Federal Securities law. Refer to Pacific Sunwear of California, Inc. s SEC filings for further information on risks and uncertainties that could cause actual results to differ materially from forward looking statements made during this presentation.
Company Overview Leading retailer of casual apparel, footwear and accessories for teens Four businesses: PacSun Stores, PacSun Outlet Stores, d.e.m.o. and e-commerce 1,063 Stores in 50 States and Puerto Rico
Powerful Demographics 32 million teens Teens have $170 billion of spending power
Record 2004 Performance Sales: Total Comp % Net income EPS Operating margin $ (mil) $1,229.8 $106.9 $1.38 13.8% % Increase +18% +7% +33% +35% +12%
Strong 2nd Quarter 2005 Results Sales increased 14% to $309.1 million Net income increased 21% to $21.1 million EPS increased 27% to $0.28 per diluted share Operating income improved to 10.6% from 10.2%, an increase of 40 basis points
2nd Quarter Trend Comp Store Increase May 0.4% June 4.9% July 4.0% 2nd Quarter 3.2%
August Results August sales up 10.9% comps up 2.6% PacSun comps up 3.2%, d.e.m.o. comps down 3.1% PacSun comp driven by denim, short sleeve tee s, track jackets and accessories Demo comp driven by girls business up highsingle digits more than offset by continued weakness in guys business
PacSun Overview Targeted at teens (12-18 years old) Based on California lifestyle with surf and skate emphasis Average store 3,600 square feet 786 non-outlet stores - 8/27/05 900 store potential
Brands Differentiate PacSun From Competition Branded products represent 69% of sales vs. 0% at vertical competitors Ability to add and drop brands based on trends and performance Footwear - A dominant assortment of unique brands with limited distribution account for 16% of sales Accessories account for 18% of sales - contribution highest amongst peer group
Strong Trends in PacSun Business Tee s Denim Accessories Polo s Track Jacket s Success in more feminine fashion
PacSun Back-To-School Marketing Campaign
September Marketing Campaign
October Marketing Campaign
PacSun Balance of 2005 New Product Initiatives New private label skate brands Nollie & Vert Fragrance launched in July Apparel being introduced in October Home products added to approximately 375 stores for October New shoe brand to be introduced in October
New PacSun Prototype Store First store opened July 2005 in Tyler Mall 15 additional stores anticipated by year end Testing additional merchandise classifications targeted to add incremental revenues New store design adaptable to all PacSun store sizes Testing larger square footage format in Tyler and several other 2005 locations Size range of 6,000 9,000 square feet
PacSun Outlet Stores Located in outlet malls throughout the country Off-price branded merchandise + private label brands + current season fashion merchandise Everyday value pricing strategy 91 stores at 8/27/05 with 100 Store potential
PacSun Outlet Stores Highly Profitable Sales per square foot above PacSun Similar gross margin with lower occupancy costs
PACSUN.COM
E-Commerce Small share of business but growing rapidly Major focus on profitability in 2004 26% sales increase Over 80% profit growth 62% profit increase in first half 2005
E-Commerce 2005 Initiatives Redesigned PacSun website launched spring 2005 E-commerce enabled d.e.mo. website launched June 2005
d.e.m.o. Overview Merchandise and fashion inspired by Hip Hop music and personalities associated with the lifestyle Target customer: 16-24 year old Mall based with limited competition Average store 2,500 square feet 186 stores 8/27/05 Potential for 400 mall locations
d.e.m.o. 2005 What has worked year-to-date Continued strong momentum in Girl s Comp up double digits Success in Baby Phat and Apple Bottoms Successful Guy s polo business Successful new branded fragrance launch New President, Lou Ann Bett, started May 2005
d.e.m.o. 2005 What hasn t worked year-to-date Continued difficulty in Guy s business Lack of novelty in tee s Weakness in short sleeve wovens Not enough polo s Weakness in Guy s accessories
d.e.m.o. 2005 Initiatives for Balance of 2005 Continued rapid growth of Girl s business Focus on underdeveloped accessories and footwear businesses Improve trend in Guy s business Grow new and underdeveloped brands Girl s Apple Bottoms, Akademiks Guy s Sean John
Fall 2005 d.e.m.o. Marketing Campaign
STORE GROWTH
Store Square Footage Growth New PacSun Stores New Outlet Stores New d.e.m.o. Stores Expansions/Relocations Sq. Footage Increase Over Prior Year 2004 67 5 41 113 35 15% 2005 (Projected) 70 10 40 120 35 15%
Stores Open at Year End 1200 1000 877 990 1,110 800 718 791 600 450 589 400 200 0 1999 2000 2001 2002 2003 2004 2005 Projected
New Concept One Thousand Steps Objective is to provide future sales and profit growth Targeted at 18-24 year old customer Concept will feature an assortment of casual, fashion-forward, branded footwear, and related accessories First 8-10 locations anticipated to open in the first half of 2006 averaging 2,500 square feet Minimal overlap with PacSun stores
FINANCIAL REVIEW
Total Sales ($ s in millions) $1,400 $1,230 $1,200 $1,041 $1,000 $847 $800 $600 $400 $321 $437 $590 $685 $200 $- 1998 1999 2000 2001 2002 2003 2004
Gross Margin Percentage 37% 36% 35% 34.5% 35.8% 36.4% 34% 33% 32.9% 32% 31% 2001 2002 2003 2004
SG&A (as a percentage of sales) 27% 26.5% 26% 25% 24% 23% 22% 21% 24.9% 23.5% 22.6% 20% 2001 2002 2003 2004
Operating Margin (as a percentage of sales) 16% 14% 12.3% 13.8% 12% 10% 8% 6% 4% 2% 6.5% 9.6% 0% 2001 2002 2003 2004
Net Income ($ s in millions) $120 $106.9 $100 $80.2 $80 $60 $49.7 $40 $27.6 $20 $- 2001 2002 2003 2004
Return On Equity 30% 25% 20% 16.7% 19.0% 23.3% 15% 10.7% 10% 5% 0% 2001 2002 2003 2004
Cash Flow - 2004 Operating cash flow: $143.0 Capital expenditure: $82.0 No debt Ability to fund growth from operations
Summary Balance Sheet ($ s in millions) 7/30/05 7/31/04 Cash and Investments $ 162.6 $ 85.6 Working capital $ 279.8 $ 204.0 Shareholder s equity $ 494.4 $ 400.9
Summary of First-Half Financial Performance ($ s in millions) 2004 2005 Change Sales $517,665 $589,049 +13.8% Comp +3.1% Gross Margin % 34.9% 35.3% +40 bps Operating Margin % 9.9% 10.2% +30 bps Net Earnings $32,436 $38,719 +19.4% E.P.S. $0.41 $0.51 +24.4%
Guidance for 2005 Reiterate 15% to 20% increase in net income
Stock Repurchase - 2004 5.2 million shares = $110.0 million
Stock Repurchase - 2005 Additional $100 million repurchase announced on May 12 th 2005 bringing total to $115 million Repurchased 970,500 shares in the 2 nd quarter
New Financing Agreement The Company entered into a new five-year $200.0 million credit facility with an expanded syndicate of seven banks Expandable further, up to $275.0 million, at the option of the Company under certain circumstances Replaces the Company s previous single bank, $50.0 million credit facility, which was scheduled to expire on April 1, 2007
A History of Growth & Results Since going public in March 1993: Increased store base from 60 to 1,029 stores Increased sales from $46 million to $1.2 billion at year end Increased profits from $3 million to $107 million at year end Six 3 for 2 stock splits Increased market cap from $60 million to approximately $1.7 billion
Investment Highlights Incremental margin opportunities Incremental sales productivity opportunities Continued expansion of existing concepts