PSUN: Real Estate Transactions Provide An Additional Capital Cushion

Analysts at Weeden & Co maintain their "hold" rating on Pacific Sunwear California Inc PSUN, while reducing their estimates for the company. According to Weeden & Co, “The men's business comped positively and juniors comped less negatively in Q2, both trends we expect to continue to show improvement. The gross margin guidance (down 240 bps YOY) reflects the promotional environment (particularly in denim) and continued deleverage on occupancy.” “Agreement with Modern Amusement backs key strategy of focusing more on unique brands. While the company has a lot on its plate, the partnership with Modern Amusement will be launched on the men's side for spring initially, where PacSun has demonstrated more progress and in many ways, is like a sub brand. While the arrangement uses PacSun's merchandising, design, and sourcing capabilities, the creative force behind this credible brand, Mossimo Giannulli, should help set it apart from other private-label brands,” the analysts mention. Weeden & Co adds, “Real estate transactions provide an additional capital cushion. The $28.3M garnered from the transactions should roughly offset cash burn in FY10. Annual interest cost associated with these transactions should approximate $2.4M. We think the financing makes sense in that it provides a cushion to PSUN's cash management, given the uncertain retail environment.” Weeden & Co has lowered its EPS estimate for FY10 from -$0.70 to -$0.74. More Analyst Ratings here