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Pacific Sunwear Dips After Report

Apparel: Shares in the Anaheim-based retailer fall 21%. An analyst had cited heavy price competition in youth market.

October 24, 1998| From Times Staff and Wire Reports

Pacific Sunwear of California shares tumbled 21% on Friday amid investor concern that its casual clothing sales in the Midwest are being hurt by aggressive price competition from other youth-apparel retailers.

The Anaheim-based retailer's stock fell $5.44, to $20.81, in Nasdaq trading of 4.82 million shares, more than seven times the three-month daily average.

The company blamed the drop on an analyst's downgrading of the stock.

"We're sort of puzzled, but the analysts do what they do," said spokesman James K. White.

The drop does not reflect problems within the company, officials there said.

Analyst Daniel R. Wewer of Robinson-Humphrey Co. LLC, who issued the report on the company Thursday, said he still expects Pacific Sunwear's third-quarter profits to jump 33%, to 36 cents a share, or about $76.25 million.

"In fact, we could see a few cents' upside to this forecast," he said in the report.

Pacific Sunwear, which had sales of $227.1 million for the year ended Feb. 1, specializes in casual wear, footwear and accessories for teens and young adults. In the Midwest, price competition from other clothing chains has forced the store to offer a 25% discount on categories such as corduroys, sweaters and jackets to avoid losing market share, analysts said.

"Markdowns in stores such as Gadzooks and Abercrombie & Fitch appear particularly aggressive," Wewer said in the report. "Unfortunately, we are seeing greater-than-expected promotional activity."

Wewer, who lowered his rating on Pacific Sunwear to short-term "market perform" from short-term "buy," said sales are more robust in California and Florida, where the company is not threatened by competition.

Still, some analysts said rivals are not a big issue.

"October is always a more promotional month in general in retail," said Kindra Hix, an analyst at NationsBanc Montgomery Securities, who rates the stock "buy."

Hix said there's "nothing unusual" about the price markdowns, because Gadzooks has some merchandising problems and Abercrombie & Fitch is in the midst of its annual fall sale.

"Pacific Sunwear's business is very much on plan for the year," Hix said.

While rivals such as Abercrombie & Fitch have customers who are a little older, Pacific Sunwear caters to the casual-wear market for 15- to 16-year-olds, where business is strong, she said.

Pacific Sunwear operates 272 stores in 37 states.

Bloomberg News Service and Times staff writer Leslie Earnest contributed to this report.

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