Anaheim, CA-based specialty retailer, Pacific Sunwear of California Inc. , is expected to report fourth-quarter fiscal 2015 results on Mar 23. The big question facing investors now is, whether the company will be able to deliver a positive earnings surprise in the quarter to be reported.
In the previous quarter, the company surpassed the Zacks Consensus Estimate by 28.6%. In the trailing four quarters, Pacific Sunwear of California lagged the Zacks Consensus Estimate by an average of 17.9%. Let’s focus on the determinants of the fourth-quarter results:
Factors Influencing this Quarter
Pacific Sunwear of California, under its President and CEO Gary H. Schoenfeld, has undertaken several initiatives to strengthen and grow its brand with a hope to turn its performance around. However, we believe the company’s upcoming results will be negatively impacted by its store closure program. Previously, management said that it intends to shut down approximately 15–20 underperforming stores during the fourth quarter.
In its third-quarter earnings conference call, the company stated that it estimates the bottom line to range from a loss of 14 cents to 4 cents per share for fourth-quarter fiscal 2015, compared with a loss of 10 cents in fourth-quarter fiscal 2014. Management also projected revenues between $223 million and $237 million. Moreover, management expects comparable-store sales to be in the range of -3% to 3%. Gross margin (including buying, distribution and occupancy) is projected at around 24–26%, while selling, general & administrative expenses are anticipated to range from $62–$63 million in the fourth quarter.
Our proven model does not conclusively show that Pacific Sunwear of California is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here, as elaborated below.
Zacks ESP: The Earnings ESP for Pacific Sunwear of California is 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate both stand at a loss of 10 cents.
Zacks Rank: Pacific Sunwear of California carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks Poised to Beat Earnings Estimates
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:
Constellation Brands Inc. (STZ - Free Report) has an Earnings ESP of +0.89% and a Zacks Rank #2.
Walgreens Boots Alliance, Inc. (WBA - Free Report) has an Earnings ESP of +2.36% and a Zacks Rank #3.
GameStop Corp. (GME - Free Report) has an Earnings ESP of +0.89% and a Zacks Rank #3.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>