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Will Bankruptcy Be Next for Pacific Sunwear?

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PacSun

Business at California-inspired specialty chain Pacific Sunwear doesn’t appear to be picking up, and the next major headline about the company could be one calling out a bankruptcy filing.

PacSun said Monday that it had received a second notice of delisting from the Nasdaq Global Select Market for failing to meet listing requirements, which stipulate that a stock has to have a minimum bid price at or above $1.00 at least once in a period of 30 consecutive business days.

At publication time, PacSun shares were trading at $0.22.

The company first received a deficiency letter with the delisting warning from Nasdaq last November, and with the second one in hand—which says the company will be delisted Thursday—PacSun said it will appeal the decision, suggesting that a reverse stock split could get the company back in compliance.

Sales have been plunging at PacSun amid a struggling teen market, and steady losses have helped the company amass a debt load of $160 million, which it recently hired financial advisors to help manage before this year’s impending maturity.

In its Daily Bankruptcy Review, The Wall Street Journal said, “The company is weighing its options whether to restructure the debt outside of court, or as part of a restructuring under Chapter 11,” citing sources familiar with the situation.

For its latest quarter, PacSun reported net sales down 3 percent to $205 million for the third quarter ended Oct. 31, marking its third straight quarter of slumping sales. Comparable store sales were down 3 percent, and net loss totaled $3.4 million in the period, compared to a net loss of $0.5 million in the prior year period.

Despite the results, PacSun president and CEO Gary H. Schoenfeld maintained an upbeat outlook, saying at the time, “We have been encouraged by improving trends over the past 90 days leading to Q3 results at the high-end of our guidance, an 11 percent comp on Black Friday and a 1 percent comp for November,” and adding, “While there is no shortage of challenges still to overcome, we believe that our Best Brands, Great Style positioning is creating something distinctly relevant amidst a very crowded marketplace.”

But those challenges, it seems, aren’t quite being overcome and the young shoppers PacSun once counted on aren’t cooperating.

Teens have been turning away from the retailers they once frequented, forcing many—like Wet Seal, Delia’s, Deb Shops and Quiksilver—to file for bankruptcy in recent years. Their dollars are instead going to fast fashion, tech and athletic gear.

PacSun has been able, until now, to keep its financial struggles at bay thanks in part to closing close to 200 stores four years back and rolling out the Kendall and Kylie Collection, but as one analyst told the Journal, those were only short-term solutions and more major restructuring could prove necessary.

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