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ANAHEIM, CA-In the midst of a campaign to refresh its stores and streamline its operations, specialty retailer Pacific Sunwear reporeted a $10.5 million quarterly loss Thursday, citing improvement in its operations but saying that the company “has a lot of work to do.” The company’s program to update its store format, which it refers to as “refreshing,” has changed over 24 stores thus far this year, including relocations and new stores, chief executive officer Sally Frame Kasaks of the Anaheim-based company commented Thursday in a conference call with financial analysts.

The $10.5 million Pacific Sunwear loss for the second quarter that ended Aug. 4, which was 15 cents per diluted share, compared with net income of $9.7 million and earnings per share of 14 cents in the comparable quarter last year. Sales increased 9.7% to $344.2 million in comparison with figures for the second quarter of last year.

Total company same-store sales increased 1.8% during the quarter. A breakout by store format showed that PacSun same-store sales increased 3% and demo same-store sales decreased 10.7%. Since the company tallied a 53-week fiscal year in 2006, it compared same-store sales for the second quarter of fiscal 2007 to the 13-week period ended Aug. 5, 2006.

The company blamed 14 cents out of the 15-cent quarterly loss on lease termination expenses and other liquidation charges associated with the previously announced closing of 74 demo stores. It also blamed charges associated with One Thousand Steps for slightly under a cent per diluted share of the loss.

Without the one-time losses for demo and One Thousand Steps, company officials pointed out, net income would have totaled $4.8 million and seven cents per diluted share.

Kasaks commented in the conference call that, “While elements of our efforts to improve the PacSun stores are showing progress, we still have a lot of work to do.” She said that July ended much weaker than the company had projected, which it attributed to the impact of the late back-to-school starts in Florida and Texas, two of its most significant markets, which account for approximately 15% of its sales.

Despite the financial impact of the store closings, Kasaks said that, “The closing of our 74 underperforming stores in the early spring was the right call.” However, she added, “It did cause some complexities to the operation,” and “The business remains challenging despite these closings.”

Pacific Sunwear operates retail concepts including its 840 PacSun stores, 117 PacSun Outlet stores, 152 demo stores and nine One Thousand Steps stores for a total of 1,118 stores in 50 states and Puerto Rico.

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