Pacific Sunwear opts cost reduction as recession strategy
Pacific Sunwear of California Inc today announced a number of cost reduction actions aimed at strengthening the Company's operational and financial position in fiscal 2009.
In anticipation of a continuing difficult economic environment in the coming year, the Company has:
* Reduced planned inventory levels by at least 20 percent throughout the year, thereby significantly reducing the amount of cash that will be invested in inventory at any one point in time;
* Reduced planned capital expenditures to not more than $30 million for the year, a reduction of over $50 million from the fiscal 2008 level; and
* Reduced planned selling, general and administrative expenses on a GAAP-basis by approximately $35 million versus the fiscal 2008 level (2008 includes total non-recurring impairment charges for goodwill and the Anaheim distribution center of approximately $15 million). These reductions are most prominently within headquarters and field management expenses.
Taking these factors into account, the Company currently expects to maintain sufficient borrowing availability for the foreseeable future under its $150 million revolving credit facility. The credit facility expires in 2013 and contains no financial covenants unless the Company is drawn to the last 10 percent of the credit facility. The Company also currently expects to begin fiscal 2009 with cash balances of at least $20 million and no borrowing-based debt.
As part of the reduction in selling, general and administrative expenses, the Company announced a workforce reduction resulting in the elimination of 47 positions at the Company's Anaheim headquarters and 10 field management positions. This action reduces the Company's headquarters and field management staff by approximately 11 percent.
The Company expects to incur pre-tax severance charges of approximately $1.5 million during the fourth quarter of fiscal 2008 ending January 31, 2009 in connection with the workforce reduction. The Company estimates this action will result in pre-tax savings of approximately $5 million per year beginning in fiscal 2009, which begins February 1, 2009.
"The actions announced today are aimed at putting our Company in a stronger position to weather the continuing challenges in the macroeconomic environment while enabling us to continue moving forward with the key strategic initiatives we have underway," said Sally Frame Kasaks, Chairman and Chief Executive Officer. "We are very disappointed to announce the workforce reductions, but believe we must be prudent in managing our costs and strengthening our balance sheet and liquidity as we meet head-on the unprecedented conditions that the retail industry is currently facing."
Pacific Sunwear is a leading lifestyle specialty retailer rooted in the youth culture and fashion vibe of Southern California. The Company sells casual apparel with a limited selection of accessories and footwear designed to meet the needs of teens and young adults. As of January 3, 2009, the Company operated 811 PacSun stores and 126 PacSun Outlet stores for a total of 937 stores in 50 states and Puerto Rico.
Pacific Sunwear of California Inc