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CEO of Pacific Sunwear Resigns

Seth Johnson's exit follows weak results for the once-hot Anaheim- based surf retailer.

October 03, 2006|Alana Semuels | Times Staff Writer

Pacific Sunwear of California Inc., a surf retailer with not-so-awesome sales and flagging profits for most of the year, said Monday that its chief executive had resigned after fewer than two years on the job.

Seth Johnson was replaced by the company's lead director, Sally Frame Kasaks, 61, who will serve as interim CEO while the Anaheim-based company seeks a replacement. She is a former CEO at Abercrombie & Fitch Co., Talbots Inc. and AnnTaylor Stores Corp.

Johnson, 52, who was lured from rival Abercrombie & Fitch in the fall of 2004, said Monday, "The board and I had differing views of how to run the company."

"It was best for us to go forward in different directions," he said. "I'm going to go enjoy life in Laguna Beach."

Pacific Sunwear, previously a strong performer in the teen retail market, has struggled in the last year to beat out competitors such as Zumiez Inc. and Hollister Co., an Abercrombie chain.

"They haven't been doing very well lately," said Christine Chen, a research analyst at Pacific Growth Equities in San Francisco. "And the competition is starting to look better and better."

Pacific Sunwear's shares jumped with the news, closing Monday up $1.09, or 7.2%, at $16.17, but remained 42% below their 52-week high of $27.99, reached last November.

Pacific Sunwear operates more than 1,000 stores nationwide under the names PacSun, PacSun Outlet, d.e.m.o. and One Thousand Steps, a new chain that sells designer footwear.

Sales at stores open at least a year, a key measure of a retailer's health, have fallen every month this year but April.

In August, the company posted $9.7 million in net income for the quarter ended July 29, down 54% from $21.1 million a year earlier.

The company also announced Monday that total sales for the five weeks of September were up 4% from the same period last year. But same-store sales were down 2.4%.

"The company has made several execution mistakes in the last couple of quarters that should not have happened," said Jeffrey Van Sinderen, an analyst at B. Riley & Co.

Many of the mistakes, he said, involved merchandising decisions. For example, in late August, a crucial time for back-to-school shoppers, PacSun stores did not stock enough "wear now" clothes, and inventories at d.e.m.o. stores were also smaller than what would have been optimal, Van Sinderen said.

Pacific Sunwear agreed to pay Johnson's $1-million-a-year salary for the next 13 months, or a total of $1.1 million. He received a salary of $976,923 as Pacific Sunwear's CEO in 2005, plus a $1.1-million bonus.

The company declined to comment on his departure. But spokeswoman Lin Wu said, "There's no change in strategy or vision. We're just hoping for a good holiday season."

Johnson arrived at Pacific Sunwear at a heady time in 2004. Its earnings had grown an average of 35% in the previous five years, with sales increases averaging 27%.

But upon his arrival, two of the three executives who had built the company were on their way out, and President Timothy Harmon left half a year later.

The onus was on Johnson to continue to navigate Pacific Sunwear's growth. It's a task some analysts say he failed at.

"When it comes to execution mistakes, everything goes back to the CEO," Van Sinderen said.

The company's problems can't be tied only to Johnson though, said analyst Adrienne Tennant of investment firm Friedman, Billings, Ramsey & Co. Pacific Sunwear has been struggling with its girls' line for more than two years, she said, noting that it had only recently relaunched its girls' denim line.

The boys' side also has been struggling, especially in d.e.m.o. stores, which failed to launch any significant new trends, she said.

Tennant said that although the failures couldn't be tied only to Johnson's leadership, the company would probably be looking for a different type of CEO next time around. Johnson was more focused on financial aspects of the company than on merchandising, she said.

"Pacific Sunwear is really struggling with its merchandise. They would want a merchant at the helm," she said.

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