Pacific Sunwear of California, Inc. (PSUN), Zumiez Inc. (ZUMZ), Quiksilver, Inc. (ZQK): Two Summer Retailers to Buy and One to Avoid

Summer’s almost here. For shoppers in much of the northern hemisphere, this means it’s time to load up on swimwear and outdoor activewear. For investors, this means that it could be a favorable time to invest in some apparel retailers that specialize in these fashions. However, this sector has been a particularly volatile one over the past five years, and is a tough one to successfully navigate. In this article, I’ll discuss two potential winners and one to avoid in this sector.

Pacific Sunwear of California, Inc. (NASDAQ:PSUN)

The sun shines again on PacSun

For a few years, Pacific Sunwear of California, Inc. (NASDAQ:PSUN), also known as PacSun, didn’t look like it was going to survive. At the nadir of the financial crisis in 2009, the stock dipped under $1 per share as both its top and bottom lines crumbled. The company operates mall-based beachwear retail stores, and currently operates 643 stores across the United States.

For the first quarter, analysts had fairly low expectations for the company, expecting a loss of $0.19 per share on revenue of $164.22 million. However, Pacific Sunwear of California, Inc. (NASDAQ:PSUN) topped on both profit and revenue, reporting a narrower-than-expected loss of $0.14 per share, up from a loss of $0.20 per share in the prior year quarter. Revenue declined 2.3% to $169.8 million.

While its top and bottom line growth weren’t particularly impressive, Pacific Sunwear of California, Inc. (NASDAQ:PSUN)’s same-store sales growth of 2%, followed up by its current quarter forecast for “flat to 5%” same-store sales growth, was extremely encouraging, compared to the 15% same-store sales decline that teen apparel bellwetherAbercrombie & Fitch Co. (NYSE:ANF) reported last quarter.

Some analysts have speculated that Abercrombie & Fitch Co. (NYSE:ANF)’s Hollister brand was falling out of fashion due to its “California style” fashion, but Pacific Sunwear of California, Inc. (NASDAQ:PSUN)’s numbers prove that there is still a market for the sunny fashions of the Golden State. In addition, Pacific Sunwear of California, Inc. (NASDAQ:PSUN)’s same-store sales growth in the first quarter marks the company’s fifth consecutive quarter of positive same-store sales.

Zumiez Inc. (NASDAQ:ZUMZ) zoom up or down?

Meanwhile, Zumiez Inc. (NASDAQ:ZUMZ), which specializes in skater, snowboarder and surfer apparel, reported some lopsided numbers during the first quarter. The company’s earnings came in at $0.13 per share, a 45% decline from the prior year quarter, but topped analyst estimates by a penny. Meanwhile, revenue rose 14% to $148.5 million. The company attributed its steep earnings decline to rising expenses, especially a 26% rise in SG&A (selling, general & administrative) expenses. Zumiez Inc. (NASDAQ:ZUMZ) is in the process of digesting Blue Tomato, a European activewear retailer it acquired last year for $75 million, which weighed down its quarterly earnings by 5 cents per share.

Same-store sales slid 0.7%, a disappointing decline from the 13% growth it reported a year earlier. The company currently operates 505 stores globally, and intends to add 58 new stores during the year.

Zumiez Inc. (NASDAQ:ZUMZ) is a tough call. While its same-store sales decline is tame compared to other teen apparel retailers, it is a big drop from the previous year. Meanwhile, the company seems intent on expanding its footprint into Europe, at a time when most companies are limiting their exposure to the entire region. However, Zumiez Inc. (NASDAQ:ZUMZ) could stabilize later this year if it manages to report lower expenses and positive same-store sales.

Quiksilver, Inc. (NYSE:ZQK) is headed for a bone-crushing wipeout

This brings us to the worst choice of the bunch – Quiksilver, Inc. (NYSE:ZQK). The surf and sun apparel retailer recently wiped out, after reporting weak second quarter earnings. The company reported a net loss of $0.19 per share, or $32.4 million, a steep plunge from the loss of $0.03 per share it reported in the prior year quarter. Revenue decreased 7% to $458.7 million. Analysts had expected Quiksilver, Inc. (NYSE:ZQK) to lose $0.04 per share on revenue of $505.4 million.