Wachovia Downgrades Pacific Sunwear (PSUN) to Market Perform

October 8, 2008 10:14 AM EDT

Wachovia downgrades Pacific Sunwear (Nasdaq: PSUN) from Outperform to Market Perform. Valuation range $5-6.

Wachovia analyst says, "Until now, our thesis had been predicated on improvements in merchandising, coupled with new operating efficiencies. However, we believe the assortment is losing focus, evidenced by too much color overall and an overinvestment in the weak-trending fleece category. Additionally, the macroeconomic environment is proving more challenging than anticipated and the elements of our original thesis are likely to take much longer to play out...Key Reasons for Downgrade (1) The expected turn in merchandising is not materializing for fall, evidenced by continued below-plan comps and higher markdowns. Additionally, we expect the juniors and young men's private label denim businesses to naturally decelerate against improvements to last year. (2) New information systems and supply chain enhancements should improve operating efficiencies, but we now believe it will be into the second half of next year before management realizes any benefits."

Pacific Sunwear of California, Inc. is a specialty retailer focused on action-sport inspired casual apparel, accessories and footwear designed to meet the needs of active teens and young adults.

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