Pacific Sunwear (PSUN) operates two retail chains: PacSun and demo. PacSun is a national chain of surfing and skating topics, about 900 locations , Including approximately 3.25 million square feet. D.e.m.o. Is a chain of hip-hop topics, with about 200 stores including about 500,000 square feet. Nationwide, these two markets are aimed at "adolescent" markets (especially boys and girls aged 12-24 years),

Girls) PacSun operates about 800 PacSun stores and 100 PacSun outlets . Unlike PacSun stores, PacSun stores are very evenly distributed on a population basis, and PacSun stores tend to be densely populated ("suburban sprawl") with a high population density. The only exceptions are Virginia, North Carolina, and Louisiana. Although the number of stores in any one state is small enough that the disproportionate concentration of PacSun Outlets in these states may be purely coincidental, I suspect.

It is more likely that PacSun Outlets in these states are benefiting from the anticipated population growth in their surrounding communities, and due to the increase in population such as New York, New Jersey, Maryland, Michigan, Illinois and California State of the danger of saturation and development. I have not heard of the management discussing this matter. So, this is my guess. It is interesting to see where the new PacSun and PacSun Outlets are.

In most cases, PacSun stores are not exceptionally concentrated in any state or region. In fact, they are evenly distributed relative to the national population. It is possible that management intends to take action to ensure a uniform distribution of PacSun stores in the United States. As a result, regional economic and demographic trends will not have a significant impact on PacSun's operations.

d.e.m.o. Stores are not (still) evenly distributed . They are disproportionately located in the northeast, southeastern, and california states. There are relatively few d.e.m.o. Stored in the western part of the Appalachians and eastern Sierra Nevada. The number of stores in d.e.m.o. continues to grow at a rate of 20-25% per year; hence, a more even distribution can be achieved in the future. Among adolescents, hip-hop clothing is not limited to the northeast, southeast, and california. Therefore, d.e.m.o is not likely. Pacific Sunwear's strategy is to operate two independent non-self-crystallizing chains . Management claims that each chain is focused on a different "subculture" of adolescents. I think the subculture is an overly powerful term (the guilty retail executive, like academics, extends the word to the point where it lost its meaning). However, indeed, the two styles are, indeed, two sets of customers are different. There is little overlap between PacSun customers and d.e.m.o.

In April, the company plans to launch One Thousand Steps, a chain of footwear and accessories for 18-24 year olds.

Pacific Sunglasses Looking for stores in high traffic shopping malls . The company is actively seeking to locate its stores in a large number of adolescent shopping malls, despite the fact that it competes directly with competitors such as Abercrombie & Fitch (ANF), American Eagle (AEOS), Aeropostale ARO, HOTT ) and Gap (GPS) .

PacSun footwear products are particularly effective in keeping young people back . PacSun footwear products are particularly effective in keeping young people back . Shoes, especially the type of PacSun sales, are a good lure to young men, as men often like to shop more often than women. Even without fashion issues, shoes must be replaced regularly. In addition, men between the ages of 12-24 must buy new shoes, even without taking into account the aesthetic factors, because the old shoes will only stop fitting their feet.

There is such anecdotal evidence; however, unfortunately, I can not find a study that describes the annual change in shoe size for different parts of this age group. There is a lot of data on height changes in this age group. However, changes in height are likely to occur simultaneously with changes in shoe size.

It also shows that changes in shoe size are more common and more pronounced in the smallest part of this population. This has important psychological implications because, if it is true, selling footwear tends to cause young people to frequent a particular store when they are more likely to form regular shopping habits. For example, a male shopper expects to have more attachments and stronger attachments at the age of 17.

The Pacific Sunwear store offers a wide selection of items within each brand . In fact, the company has been responsible for some of its brand extension to new products (especially footwear and accessories). Pacific Sunwear has encouraged some of the most well-known brand owners to expand beyond their original products and sell their products nationwide using their brand's prominence in Pacific Sunwear's stores To achieve this change, because the company is usually one of the largest customers of each of its suppliers . In several cases, Pacific Sunwear is the largest customer. The company's impact on the seller is greater than the total sales of the proposal, because its sales of products are often more than some Pacific Sunwear's larger competitors have more limited distribution of products.

PacSun and the demo carry branded stores that benefit greatly from their targeted "subcultures" in images . These are niche brands that stand out in PacSun and d.e.m.o, which are more closely tied to their niche.

There are some anecdotal evidence that the PacSun store carries brand names that have been closely associated with the chain, in the customer's mind, the image of the brand and the image of the store . If the brand carried in the PacSun store is also shipped elsewhere, it is almost always obvious in the PacSun store because PacSun's target market is very similar to the brand's target market – the PacSun project is relatively undiluted.

Pacific Sunwear's total sales accounted for about 67% of the name brand sales and 33% private brand sales . Pacific Sunwear's two largest individual brand suppliers are Quiksilver (ZQK) and Billabong. The two companies may still be best known for their surf wear; however, they have branched out into other merchandise such as skateboarding and skiing outfits and various accessories.

Each company's merchandise accounts for about 10% of the total sales of Pacific Sunwear or the total name of the brand sales of the total sales of the brand name of Quiksilver, Roxy and DC shoes brand; Billabong Billabong and Element sales [Of15%. In other words, every dollar spent on the Pacific Sunwear store costs about twenty cents on Quiksilver or Billabong products. These percentages are based on the total sales of Pacific Sunwear;

Pacific Sunwear's total sales include approximately 65% ​​of garments, 20% of accessories, and 15% of footwear . Sun Sunwear has been selling women's clothing than women's clothing. In recent years, the gap has narrowed slightly. At present, clothing sales, including about 55% of men's clothing and 45% of women's clothing

apparel sales accounted for the proportion of Pacific Sunwear total sales decreased over the previous few years, because footwear sales faster than clothing sales . Accessories sales grew faster than apparel sales, but sales were slower than footwear. Only the relative growth is discussed here; absolute growth is positive in all categories.

Recently, the total number of transactions per comparable store in PacSun and demo has been anemic . However, the average sales growth was significant, with Pacific Sunwear releasing strong same-store sales. In the past two years, the total number of transactions per comparable store was essentially flat. Recently, the average sales growth of up to 7-8%.

This may be a short-term trend . Unfortunately, I do not believe this is. Pacific Sunwear's performance in total volume growth and sales growth per square foot is not as strong as the headline data suggests.

These indicators (and many other available data) give the overall impression that the PacSun chain is more mature than Pacific Sunwear . The number of shops alone may lead some to believe that PacSun's past growth rate is unsustainable. Of course, every retailer has to face this dilemma to some extent – professional retailers like PacSun must face the problem more quickly than most retailers.

Sometimes, PacSun's comparable store sales grow more than same-store sales growth at demo The difference is usually small, but that does not make it unimportant. In the most recent period, same-store sales were stronger at d.e.m.o. Than PacSun. Still, d.e.m.o. Did not have the same potential as Pacsun did. However, the management intends to add new d.e.m.o. stores – and there is no good reason not to go.

PacSun and d.e.m.o. have some space to expand left-and Sun Sunwear generate enough free cash flow to fund their expansion . The company has a lot of cash.

PacSun and Demo still has some growth potential. However, most Pacific Sunwear shareholders' attention is likely to be in a thousand steps, the company's new shopping center's footwear and accessories chain is scheduled to be released in April. A thousand steps will be aimed at people aged 18-24

I have a different feeling of a thousand steps. This concept may be a good medium for growth.

There is a real danger of over-expansion in the PacSun . There is a real danger that excessive expansion of the PacSun [IfthingsturnnegativeSunSunwearwillsufferstronglyHoweverthisisthenatureofretailProfessionalretailersarehighlyleveragedbetweenoperatingleasesandfixedcostsassociatedwitheachstore

Increased sales result in spectacular profit growth; reduced sales result in rapid erosion of these profits . It is unrealistic to assume that retailers can exit from the burden of their stores, just as marketers and manufacturers can exit a particular line of business. The biggest difference is the rate of profit evaporation. A professional retailer has little time to adjust the course.

A thousand steps are promised. Pacific Sunwear has demonstrated its ability to manage the growth of shopping arcades. The target audience for One Thousand Steps is part of the same age group for Pacific Sunwear's two other chains. Like d.e.m.o., a thousand steps will be aimed at a very different part from the existing Sun Sunwear store. Doing this is unlikely to attract the same customers who use PacSun or d.e.m.o frequently. Footwear is a good choice for a new shopping center chain . In general, most shopping centers lack the youth footwear market. While there are some notable footwear chains, a nationwide comparison of the number of shops indicates that there is plenty of room for a new shopping center for teen footwear retailers.

The edges of shoes and accessories are very good . Equally important, Pacific Sunwear demonstrated its ability to successfully sell both types of merchandise. One particularly appealing aspect of selling footwear is the strong appeal of brand names. Obviously, customers of the footwear brand to form a stronger attachment, rather than clothing brand. This is not surprising, as the number of footwear items purchased relative to apparel items is limited, as well as the frequency of wearing any one of the shoes.

Pacific Sunwear's Two Existing Chain Stores and One Thousand Step Concepts . PacSun and d.e.m.o. Sell ​​the whole garment. They provide all the clothing they need in their particular "subculture" style of service. A thousand steps will not sell the whole garment. Therefore, the new chain is unlikely to enjoy the same customer stickiness as PacSun and d.e.m.o. A thousand steps will not be as unique as PacSun and d.e.m.o Now, it is difficult to say how unique a thousand steps would be. However, it can be said that the new chain in the customer's mind than PacSun or d.e.m.o less obvious. This is not surprising. Few shops differ from PacSun or d.e.m.o. Pacific Sunwear's main competitor does not have a store that defines the image as PacSun or d.e.m.o.

Pacific Sunwear will manage a thousand-step chain better than any other company. If you first describe the concept of a thousand steps, and then ask what company is best suited to manage it, I only need a second to say Pacific Pacific.

The PacSun chain has done a huge job selling brand-name shoes to teenagers . PacSun is directly responsible for the lasting success of several of its brands. While branded shoes are already an important part of many skater lives (and more importantly, their spending habits), PacSun has greatly amplified this importance. Without PacSun, the value of major skate brands will be significantly lower than today. Few retailers have a positive impact on these brands

At this point it is impossible to evaluate the concept of a thousand steps . I will look closely at the chain to see how it separates from competitors, how to improve customer stickiness, and how to choose the brand.

Pacific Sunwear plans to open eight to ten thousand stores in the first half of 2006 . Management believes that the chain can grow to 600-800 stores. At an average size of 2,500 square feet, this means that the chain can grow to 1.5 to 2 million square feet.

After announcing the new concept (last year), Pacific Sunwear CEO Seth Johnson did The following statement:

Footwear has always been a very successful part of our classification in the PacSun store. The millennium approach will allow us to leverage our brand management skills, which we believe to be a under-served market. This new concept provides us with an exciting growth tool that adds a new and unique customer base to our business. Combined with the existing PacSun and d.e.m.o. Business, we will have the opportunity to achieve significant sales and profit growth in the future.

I am cautiously optimistic a thousand steps. This concept is more promising than d.e.m.o.

Analysts are optimistic on Pacific Sunwear's future earnings, but On Pacific Sunwear's stock price pessimistic. Wall Street expects earnings growth of 16-17% over the next five years. This is lower than the growth rate of Pacific Sunwear over the past decade. However, it is higher than my forecasted growth rate

Analysts' average 5-year earnings forecasts are in the range of 16-17%; however, the average recommendation is to hold . These two views are mutually exclusive. They are completely incompatible. You can not predict Pacific Sunwear's 16-17% earnings growth rate, nor can you expect the company to outperform the S & P. In fact, you can, because many analysts have done. However, you should not

PSUN trading price is 14 points . The evidence for significant multiple contractions is very weak. What will be the company's annual growth rate of 16-17% revenue, and P / E well below 12? The obvious answer is that a company is heavy because of its heavy debt burden. So how much debt does Sun Sunwear have? None

The Company's total liabilities are approximately equal to the current inventory levels. Current assets (inter alia) are approximately $ 350 million; total liabilities are approximately $ 250 million. The company has approximately $ 125 million in cash and marketable securities. Pacific Sunwear could generate more than $ 150 million in cash each year.

It is unlikely that the company will be able to open new stores quickly enough to generate free cash flow of $ 50-75 million per year.

There is a good chance that after five years there will be fewer trades than now . So, no matter how much contraction these analysts expect will put Pacific Sunwear's stock down to health, the growing US companies rarely see the price-earnings ratio

The PEG ratio of the company is well below 1, The forward P / E is about 12 . I do not value these numbers, but analysts seem. So, why do not they pay for PSUN? I do not know, I do not care.

] Sun Sunwear has been earning high-paying equity while hiring very little debt . Over the past 10 years, the company achieved a return on equity of 17%. The rate of return in recent years is higher than the rate of return at the beginning of the decade. However, the return on equity of the company has been above average for the whole period, and the difference between the ROE in recent years and the ROE in the past is not significant. Basically, this is a 17% return on equity business.

Sun Sunwear scores well on every earnings metric . The company has a high free cash flow margin – even higher profit margins for owners because the company is investing far more capital outlay than it needs to maintain.

Pacific sunglasses retained yields from 25-50%, non-cash assets before the tax rate between 20-30%.

Pacific Sunwear Like most competitors, renting their retail stores on long-term operating leases these figures are quite healthy, especially given their consistent consistency. . The initial term of each lease is usually ten years. The use of operating leases makes it difficult to compare the profitability of companies such as Pacific Sunwear with the profitability of companies that do not have such long-term obligations

Pacific Sunwear has about $ 700 million in future minimum rental commitments. For comparison, the present value of these commitments is estimated to be less than $ 500 million. So, even if one compares the capital structure of Pacific Sunwear to the capital structure of non-retailers, PSUN does not seem to be overly leveraged.

I do not like having retailers, I do not like retailers. If I had to choose the expected 10-year annual return for an investor who purchases a PSUN stock at a future opening price, I would choose 12-13%. The rate of return should be enough to beat the market, but the lack of a miraculous 15% return, I believe will lead to buy and hold investors 3-5% of the actual after-tax return.

It is quite possible that Pacific Sunwear will perform better than I would expect . If everything goes according to management's expectations, each of the three chains extends to a defined target, and the 10-year rate of return may be close to 15-17%. However, I think such a high rate of return is impossible. I insist 13%

If I had to choose 100% investment in the S & P 500 or 100% investment in PSUN, I might choose PSUN. If I had to choose between 25-50% investment in the S & P 500 or 25-50% investment in PSUN, I would definitely choose PSUN. In any case, I expect Pacific Sunwear's stock to beat the market in the next decade.

If you have multiple stocks, PSUN may make a better contribution to your portfolio (if at $ 22.5 or the last time a stock is traded)