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Shares of Pacific Sunwear plunge on weak outlook

NEW YORK (AP) -- Shares of Pacific Sunwear of California Inc. fell sharply Friday, a day after the surf and skate-inspired clothing retailer posted a disappointing outlook for the third quarter.

THE SPARK: The Anaheim, Calif.-based retailer said late Thursday that its loss widened to $19.2 million, or 28 cents per share, in the quarter ended Aug. 3. That compared with a loss of $17.5 million, or 26 cents per share, in the same quarter a year ago.

Excluding charges related to store closings, the company said that it earned 2 cents per share. That was above analysts' expectations for a breakeven quarter, according to FactSet. Revenue rose 9 percent to $215.2 million, just short of Wall Street's projection for $215.8 million. Revenue at stores open at least a year, a key measure of retailer health, rose 3 percent for the quarter.

But the positive report was tempered by a disappointing outlook. For the third quarter, the company expects an adjusted loss between 4 cents and 9 cents per share. Analysts were expecting it to break even, according to FactSet. And Pacific Sunwear said it expects revenue at stores open at least a year, which measures growth at ongoing locations, to fall a 1 percent drop and a 3 percent gain.

THE BIG PICTURE: Pacific Sunwear is the latest retailer to offer a weak outlook. Chains ranging from Wal-Mart Stores to Macy's to Target have reported disappointing quarterly results or weak outlooks, as consumers become more careful about spending.

THE ANALYSIS: Analysts at Wedbush said that investors should take advantage of the stock's drop and buy shares, suggesting that the guidance is "likely conservative." Betty Chen and Alex Pham also said in a note to clients that different branded products should drive more traffic to the company's stores in the second half of the year. They kept an "Outperform" rating at a $4 price target on the stock.

Analysts at Janney Capital Markets were also positive, saying that Pacific Sunwear's "turnaround remains on track." Adrienne Tennant and Gabriella Carbone kept a "Buy" rating and $6 price target, and pointed out that a shift in the calendar is incorporated into the guidance. The cited "the success of dramatic changes that have taken place in the women's business" and "strong customer responses" to new brands and collaborations as reasons for their positive view.

SHARE ACTION: Down 78 cents, or 20 percent, to $3.14 in afternoon trading Friday. That's the lowest point since late June, but share have more than doubled since the beginning of the year. In the past 52 weeks, the stock has traded between $1.36 and $4.59.