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    Pacific Sunwear of California, Inc. (PSUN)NASDAQ  Monday, January 26, 2014


    Business Model

Pacific Sunwear of California, Inc. and its subsidiaries is a leading specialty retailer rooted in the action sports, fashion
and music influences of the California lifestyle. The Company sells a combination of branded and proprietary casual
apparel, accessories and footwear designed to appeal to teens and young adults. As of January 8, 2015, the
Company operated 617 stores in all 50 states and Puerto Rico.



Recent Accomplishments

Pacific Sunwear of California, Inc., announced earlier this month that its comparable store net sales during the month
of December increased 9% compared to the same period a year ago.

"We have had an excellent Holiday season with strong sales performance in both men's and women's and an
estimated 400-500 basis point improvement in gross margins," said Gary H. Schoenfeld, President and Chief
Executive Officer. "With what will be our 12th consecutive quarter of positive comparable store net sales, customers
are embracing the new PacSun and our elevated brands and merchandising assortments."



Financial Fitness

Net sales were $212.3 million for the third quarter of fiscal 2014 versus $202.8 million for the third quarter of fiscal
2013.  For the third quarter of fiscal 2014 , comparable store net sales increased 4%, average sales transactions
increased 9% and total transactions decreased 5%, as compared to the same period a year ago.  Gross margin, after
buying, distribution and occupancy costs, was $56.7 million for the third quarter of fiscal 2014 versus $51.2 million for
the third quarter of fiscal 2013.  As a percentage of net sales, gross margin was 26.7% for the third quarter of fiscal
2014 compared to 25.2 % for the third quarter of fiscal 2013.


Net sales were $595.2 million for the first three quarters of fiscal 2014 versus $579.2 million for the first three quarters
of fiscal 2013.
 For the first three quarters of fiscal 2014, comparable store net sales increased 2%, average sales
transactions increased 7% and total transactions decreased 5%, as compared to the same period a year ago. Gross
margin, after buying, distribution and occupancy costs, was $162.9 million for the first three quarters of fiscal 2014
versus $155.5 million for the first three quarters of fiscal 2013 . As a percentage of net sales, gross margin 27.4% for
the first three quarters of fiscal 2014 compared to 26.9% for the first three quarters of fiscal 2013.



Risks

Because this company has historically financed operations primarily from internally generated cash flow and with short-
term and long-term borrowings, rising interest rates could negatively affect it's numbers.  The business is also very
closely tied to the economy, which can add some risk.



Our Trading Strategy

This trade is a very simple buy and hold strategy based on fundamentals. If the company continues to post solid,
fundamentally sound improvements to revenue, margins and earnings we would continue to hold. A rigid stop loss
would probably not be needed for this play, and we would even consider averaging our position down a little bit on
any weakness between earnings and guidance releases.