Pacific Sunwear of California Inc. and The Wet Seal Inc. on Wednesday joined the growing roster of retailers that are reducing staff.
This story first appeared in the January 29, 2009 issue of WWD. Subscribe Today.
PacSun will eliminate 47 positions at its headquarters in Anaheim, Calif., and 10 field management positions, in addition to cutting other expenses. The Wet Seal plans to trim 41 jobs, 37 at its headquarters in Foothill Ranch, Calif., and the rest in operations management.
PacSun said the job reductions, which will shrink its headquarters and field management staff by about 11 percent, would result in pretax severance charges of roughly $1.5 million in the fourth quarter. Overall, the company said the cuts would result in an estimated $5 million in pretax savings for fiscal 2009, which begins Sunday.
“We are very disappointed to announce the workforce reductions, but believe we must be prudent in managing our costs and strengthening our balance sheet and liquidity as we meet head-on the unprecedented conditions that the retail industry is currently facing,” said Sally Frame Kasaks, chairman and chief executive officer.
Kasaks said the cuts are part of a larger cost reduction plan the company has devised “in anticipation of a continuing difficult economic environment in the coming year.”
Other elements include reducing inventory levels by at least 20 percent; limiting capital expenditures to no more than $30 million for the year — a reduction of more than $50 million from the current year — and lowering planned selling, general and administrative expenses by about $35 million.
With these moves, PacSun said it expects to maintain “sufficient borrowing availability for the foreseeable future” under its $150 million revolving credit facility. The specialty retailer added that the facility, which is set to expire in 2013, contains no financial covenants unless the company is drawn to the last 10 percent of the credit facility.
PacSun, which operates 937 stores, said it expects to begin fiscal 2009 with a cash balance of at least $20 million and no borrowing-based debt.
Wet Seal said its staff reductions are expected to result in annualized pretax savings of about $3.3 million beginning in fiscal 2009. It anticipated incurring a charge between $200,000 and $300,000 in the upcoming fourth quarter related to the elimination of the jobs.
Affected employees were provided with severance packages, the retailer said.
“We will continue to manage our business conservatively as we begin what we expect to be a very challenging new fiscal year in the retail sector,” ceo Ed Thomas said.
Wet Seal didn’t respond to requests for information on what percentage of its workforce was affected, but the 41 cuts would represent 6.1 percent of its 671 full-time salaried employees as of last Feb. 2.
PacSun shares rose 15.1 percent, to close at $1.22 Wednesday. Wet Seal was up 28 cents, or 11.3 percent, to $2.75.