UPDATE 1-Pacific Sunwear to close remaining demo stores

Fri Jan 4, 2008 9:45am EST

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(Adds company comment, charges, background)

NEW YORK Jan 4 (Reuters) - Pacific Sunwear of California Inc (PSUN.O), the surfing-inspired teen clothing retailer, said on Friday that it would close its struggling chain of 154 demo stores "as soon as is practical" and take a charge of up to $50 million.

"It is in the best interests of our investors to close our remaining demo stores and concentrate our efforts on our core business," Chief Executive Sally Frame Kasaks said in a statement.

In October, Pacific Sunwear said it would close its trendy One Thousand Steps shoe boutiques and was exploring alternatives for demo, which sells urban-inspired clothing.

Wall Street had complained for years that demo was a drain on profits at Pacific Sunwear.

Demo, which launched in 1998, has struggled to find an audience at malls for hip-hop fashions that are at odds with the colorful, California surfing-inspired looks seen at Pacific Sunwear's main chain of PacSun stores.

Sales at stores open at least a year, a key gauge of retail performance, had been in a slump at demo.

Due to the demo store closures, Pacific Sunwear said it expected to incur pretax charges of $35 million to $50 million for items like severance payments, inventory reserves and lease terminations.

The company expects to incur $3 million to $4 million of the charges in the fourth quarter ending on Feb. 2 and the rest in the first quarter ending on May 3. (Reporting by Nicole Maestri, editing by Lisa Von Ahn)

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