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Pacific Sunwear shares up on holiday sales growth

ANAHEIM, Calif. (AP) -- Pacific Sunwear of California Inc.'s shares rose Friday after the after the surf-and-skate-inspired retailer said it posted a slight increase in a key revenue metric for the holiday season, reversing a small decline in the same period a year ago.

THE SPARK: Pacific Sunwear said that for the fiscal fourth-quarter through Jan. 6, its sales at stores open at least a year rose 1 percent on a continuing operations basis. That compared with a drop of 1 percent the year before.

The metric is a key measure of a retailer's health, because it excludes sales at stores that recently opened or closed.

THE BIG PICTURE: Analysts were encouraged by the sales growth, but the company noted that most of the sales came at the end of the holiday season after it had significantly discounted its merchandise, reducing profitability.

As a result Pacific Sunwear said it expects adjusted fourth-quarter loss to come in at the low end of its previously projected range of 9 to 17 cents per share. Analysts polled by FactSet expected a loss of 12 cents per share.

THE ANALYSIS: Janney Capital markets analyst Adrienne Tennant backed her "Buy" rating for the company calling the slight increase in holiday sales encouraging, adding that the company continues to control its inventories well.

"We believe the company is taking the right steps to improve the business by focusing on reconnecting with the customer, closing underperforming stores, and striving to return to a healthy cash position and sustainable positive comp performance," Tennant wrote in a note to investors.

Roth Capital Partners analyst Dave King backed his "Neutral" rating on the stock, but also said that he was encouraged by the progress made by Pacific Sun's management toward returning the company to profitability.

THE SHARES: Up 12 cents, or 6.5 percent, to $1.98 in afternoon trading, after peaking at $2.04 earlier in the day. Over the past 52 weeks, the stock has traded between $1.17 and $2.73.