PACIFIC SUNWEAR OF CALIFORNIA INC, S-3/A, 1997-06-09

PACIFIC SUNWEAR OF CALIFORNIA INC
S-3/A, 1997-06-09
APPAREL & ACCESSORY STORES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1997

REGISTRATION NO. 333-28047

================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AMENDMENT NO. 1

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

PACIFIC SUNWEAR OF CALIFORNIA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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CALIFORNIA 95-3759463
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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5037 EAST HUNTER AVENUE
ANAHEIM, CALIFORNIA 92807
(714) 693-8066
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

CARL W. WOMACK
PACIFIC SUNWEAR OF CALIFORNIA, INC.
SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER, SECRETARY
5037 EAST HUNTER AVENUE
ANAHEIM, CALIFORNIA 92807
(714) 693-8066
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:

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J. JAY HERRON, ESQ. PETER LILLEVAND, ESQ.
KAREN K. DREYFUS, ESQ. SCOTT D. ELLIOTT, ESQ.
O'MELVENY & MYERS LLP ORRICK, HERRINGTON & SUTCLIFFE LLP
610 NEWPORT CENTER DRIVE, SUITE 1700 OLD FEDERAL RESERVE BANK BUILDING
NEWPORT BEACH, CALIFORNIA 92660-6429 400 SANSOME STREET
TELEPHONE: (714) 760-9600 SAN FRANCISCO, CALIFORNIA 94111
FACSIMILE: (714) 669-6994 TELEPHONE: (415) 392-1122
FACSIMILE: (415) 773-4283
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box [ ].

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box [ ].

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering [ ].

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering [ ].

If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box [ ].

CALCULATION OF REGISTRATION FEE

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PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SHARES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE(2)
- ------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.01 per
share............................. 805,000 $39.22 $31,572,100 $9,568
============================================================================================================
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 based on the average of the high and low sales prices
on June 3, 1997 as reported on the Nasdaq National Market.

(2) $8,660 previously paid.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED MAY 30, 1997

[PACIFIC SUNWEAR LOGO]
700,000 SHARES

COMMON STOCK

All of the 700,000 shares of Common Stock offered hereby are being issued
and sold by Pacific Sunwear of California, Inc. ("Pacific Sunwear" or the
"Company"). On May 28, 1997, the last sale price of the Company's Common Stock,
as reported on the Nasdaq National Market, was $35.75 per share. See "Price
Range of Common Stock." The Common Stock of the Company is traded on the Nasdaq
National Market under the symbol "PSUN."
------------------------

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
- ----------------------------------------------------------------------------------------------------
Per Share.................................. $ $ $
- ----------------------------------------------------------------------------------------------------
Total(2)................................... $ $ $
====================================================================================================
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(1) Before deducting expenses of $300,000, all of which are payable by the
Company.

(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 105,000 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ ,
respectively.

------------------------

The Common Stock is offered hereby by the Underwriters as stated herein,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that delivery of the Common Stock
will be made through the offices of Robertson, Stephens & Company LLC
("Robertson, Stephens & Company"), San Francisco, California, on or about
, 1997.

ROBERTSON, STEPHENS & COMPANY

ALEX. BROWN & SONS
INCORPORATED

THE ROBINSON-HUMPHREY COMPANY, INC.

The date of this Prospectus is , 1997
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[INSIDE FRONT COVER: LARGE PHOTOGRAPH DEPICTING STORE EXTERIOR WITH SMALLER
PHOTOGRAPHS BELOW FEATURING YOUNG ADULTS IN ACTIVE MODES MODELLING APPAREL
OFFERED BY THE COMPANY.]

[GATEFOLD: LARGE PHOTOGRAPHS DEPICTING THE COMPANY'S FOOTWEAR DEPARTMENT AND
JUNIOR DEPARTMENT FEATURING A TYPICAL STORE'S MERCHANDISE OFFERING WITH SMALLER
PHOTOGRAPHS FEATURING YOUNG ADULTS IN ACTIVE MODES MODELLING APPAREL OFFERED BY
THE COMPANY.]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE
IMPOSITION OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE
"UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."

2
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NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER
OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF.

TABLE OF CONTENTS

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PAGE
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Prospectus Summary.................................................................... 4
Risk Factors.......................................................................... 7
Use of Proceeds....................................................................... 12
Dividend Policy....................................................................... 12
Price Range of Common Stock........................................................... 12
Capitalization........................................................................ 13
Selected Financial Data............................................................... 14
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 16
Business.............................................................................. 24
Management............................................................................ 33
Underwriting.......................................................................... 35
Legal Matters......................................................................... 36
Experts............................................................................... 36
Available Information................................................................. 37
Incorporation of Certain Documents by Reference....................................... 37
Index to Financial Statements......................................................... F-1
</TABLE>

"Pacific Sunwear of California," "Pacific Sunwear," "Bullhead,"
"Breakdown," "Diversion," "Island Force," "Hoax," "Rare Brew," "Betty's Space"
and "Tilt" are trademarks owned by the Company. All rights are fully reserved.
All other trademarks and trade names used in this Prospectus are the property of
their respective owners.

3
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PROSPECTUS SUMMARY

Unless otherwise indicated, the information in this Prospectus (i) assumes
that the Underwriters' over-allotment option is not exercised and (ii) is
adjusted to reflect the three-for-two stock split of the Company's Common Stock
effected in October 1996. References herein to fiscal years are to the Company's
52-or 53-week fiscal year, which ends on the Sunday nearest January 31 in the
following calendar year. For example, references to fiscal 1996 shall mean the
fiscal year ended February 2, 1997. Except for the fiscal year ended February 4,
1996, which had 53 weeks, all fiscal years for which information is included in
this Prospectus had 52 weeks. This Prospectus contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under "Risk
Factors" and elsewhere in this Prospectus. The following summary is qualified in
its entirety by the more detailed information, including that set forth under
"Risk Factors" and in the Financial Statements and Notes thereto appearing
elsewhere in this Prospectus.

THE COMPANY

Pacific Sunwear is a leading mall-based specialty retailer of everyday
casual apparel, accessories and footwear designed to meet the lifestyle needs of
active teens and young adults. The Company's customers are primarily young men
aged 12 to 22, as well as young women of the same age who generally prefer a
casual look. Pacific Sunwear offers many of the brands best-known by its target
customers, as well as other "cutting edge" brands that reflect fashion trends
considered timely by the Company's customers. Key brands in young men's apparel
offered by the Company include Billabong, JNCO, Quiksilver, Rusty and Redsand.
Key brands in juniors (merchandise for young women) include Roxy (Quiksilver),
Rusty, Hang Ten, Generation X and JNCO, and in footwear include Dr. Martens,
Airwalk, Etnies and Vans. Pacific Sunwear also offers a wide selection of
private brand merchandise under various labels including "Bullhead" and
"Breakdown," which are targeted at specific customer segments. Pacific Sunwear
believes that offering high quality private brands contributes to its status as
a key fashion resource for the casual teen lifestyle and differentiates the
Company from its competitors.

Based on the initial success of these merchandising initiatives, Pacific
Sunwear decided in late 1995 to increase its prototype store size from
approximately 2,000 to approximately 3,000 square feet. In fiscal 1996, the
Company opened 30 new stores, 26 of which were in the larger format, and in the
first thirteen weeks of fiscal 1997, opened 11 new stores, all of which were in
the larger format. The Company plans to open approximately 39 and 60 new larger
format stores during the remainder of fiscal 1997 and in fiscal 1998,
respectively. In fiscal 1996, the Company also began enlarging the size of
certain existing stores through expansion or relocation in order to accommodate
its new categories of juniors and footwear as well as its expanded assortment of
pants. In fiscal 1996 and in the first thirteen weeks of fiscal 1997, the
Company expanded or relocated seven and two stores, respectively, and expects to
expand or relocate 10 to 13 and 10 to 15 stores during the remainder of fiscal
1997 and in fiscal 1998, respectively, all of which are expected to include
juniors and footwear. The Company substantially completed its rollout of juniors
to its existing smaller stores by adding juniors to 39 of such stores in the
first thirteen weeks of fiscal 1997, and at May 4, 1997, carried juniors in 182
of its stores, of which 77 also offered footwear. By the end of fiscal 1997, the
Company expects to carry juniors in approximately 233 of the 256 stores it
expects to be open, of which approximately 143 will also offer footwear.

4
<PAGE> 6

The Company has expanded from 11 stores in California at the end of fiscal
1986 to 219 stores in 33 states as of May 4, 1997. Primarily as a result of this
expansion and the strategic merchandising initiatives undertaken in mid-1995,
Pacific Sunwear's annual net sales have grown from $45.8 million in fiscal 1992
to $155.3 million in fiscal 1996, representing a compound annual growth rate of
more than 35%. The Company's stores are primarily concentrated in three regions:
the Northeast (26%), the Midwest (23%) and California (22%). Based on the
performance of its stores in these different regions of the country, the Company
believes its merchandise has a broad appeal that enables it to operate
successfully in diverse geographic markets.

THE OFFERING

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Common Stock Offered by the Company............ 700,000 shares
Common Stock Outstanding After the Offering.... 8,835,134 shares(1)
Use of Proceeds................................ To open new stores, expand or relocate
selected existing stores, relocate its
distribution center and corporate offices
and for working capital and general
corporate purposes. See "Use of Proceeds."
Nasdaq National Market Symbol.................. PSUN
</TABLE>

- ---------------

(1) Excludes an aggregate of 798,643 shares issuable upon exercise of options
outstanding at May 4, 1997 granted under the Company's stock option plans,
at a weighted average exercise price of $10.65 per share, and an aggregate
of 56,250 shares of restricted stock to be issued in June 1997.

SUMMARY OF FINANCIAL AND OPERATING DATA
(in thousands, except per share and selected operating data)

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<CAPTION>
THIRTEEN WEEKS
FISCAL YEAR ENDED ENDED(1)
---------------------------------------------------- -------------------
JAN. 31, JAN. 30, JAN. 29, FEB. 4, FEB. 2, MAY 5, MAY 4,
1993 1994 1995 1996 1997 1996 1997
-------- -------- -------- -------- -------- -------- --------
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INCOME STATEMENT DATA:
Net sales........................ $ 45,787 $ 54,928 $ 85,316 $112,921 $155,261 $ 27,641 $ 38,933
Gross margin..................... 14,592 16,688 25,835 32,133 49,135 7,278 11,707
Operating income (loss).......... 3,942 3,901 5,802 4,137 12,009 (298) 1,764
Net income (loss)................ 3,021 2,711 3,851 2,624 7,412 (170) 1,124
Net income (loss) per share(2)... $ 0.60 $ 0.35 $ 0.48 $ 0.33 $ 0.89 $ (.02) $ 0.13
Weighted average common and
common equivalent shares
outstanding(2)................. 5,364 7,691 7,977 8,023 8,303 7,892 8,443
SELECTED OPERATING DATA:
Stores open at end of period..... 60 83(3) 128 182 209 191 219
Stores opened during period...... 8 24 46 55 30 9 11
Stores closed during period...... 1 0 1 1 3 0 1
Average net sales per gross
square foot(4)(5).............. $ 428 $ 388 $ 378 $ 340 $ 377 $ 75 $ 84
Average net sales per
store(4)(5).................... $818,000 $766,000 $761,000 $684,000 $792,000 $150,000 $184,000
Square footage of gross store
space at end of period......... 115,410 168,552 251,537 364,069 455,607 391,158 487,835
Comparable store net sales
increase (decrease)(5)(6)...... 23.0% (2.1)% 2.3% (2.2)% 15.7% 10.5% 17.5%
</TABLE>

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<CAPTION>
MAY 4, 1997
------------------------
ACTUAL ADJUSTED(7)
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BALANCE SHEET DATA:
Working capital............................................................... $21,414 $ 44,688
Total assets.................................................................. 68,338 91,612
Long-term debt................................................................ -- --
Shareholders' equity.......................................................... 49,225 72,499
</TABLE>

5
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(1) The business of the Company is seasonal and results for any period less than
a full fiscal year are not necessarily indicative of results that may be
achieved for a full fiscal year. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Seasonality and
Quarterly Results."

(2) Adjusted to give effect to a three-for-two stock split effected as of
October 9, 1996.

(3) Three of the Company's stores were closed temporarily due to damage suffered
in an earthquake in January 1994 centered in Northridge, California. Two of
these stores, which reopened in fiscal 1994, are included in the number of
stores open at January 30, 1994. The third store, located in Northridge, was
reopened in fiscal 1995 and was treated as a new store opened during that
period, and is not included in the number of stores open at January 30,
1994.

(4) For purposes of calculating these amounts, the amount of square footage and
the number of stores reflect the number of months during the period that new
stores and stores that were closed during the period were open.

(5) These amounts have been adjusted to exclude the fifty-third week in the
fiscal year ended February 4, 1996.

(6) For the fiscal years ended on or before January 30, 1994, comparable stores
were defined as those stores open at least one year as of the beginning of
the applicable fiscal year. Effective January 31, 1994, the Company changed
the way comparable store net sales are calculated. For the fiscal year ended
January 29, 1995 and thereafter, stores are deemed comparable stores on the
first day of the first month following the one-year anniversary of their
opening. Commencing in fiscal 1996, in conjunction with the expansion or
relocation of certain stores to the larger format, the Company excluded from
comparable store net sales calculations each such store's net sales results
beginning on the first day of the month of its expansion or relocation. Each
of these stores will be deemed a comparable store on the first day of the
first month following the one-year anniversary of its expansion or
relocation.

(7) Adjusted to reflect the sale by the Company of the 700,000 shares of Common
Stock offered hereby at an assumed public offering price of $35.75 per share
and the application of the estimated net proceeds therefrom.

6
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RISK FACTORS

This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus. The following risk factors should be considered carefully in
evaluating the Company and its business before purchasing the Common Stock
offered hereby.

MERCHANDISING/FASHION SENSITIVITY; PRIVATE BRAND MERCHANDISE

The Company's success is largely dependent upon its ability to gauge the
fashion tastes of its customers and to provide merchandise that satisfies
customer demand in a timely manner. The Company's failure to anticipate,
identify or react appropriately to changes in fashion trends could have a
material adverse effect on the Company's business, financial condition and
results of operations. Misjudgments or unanticipated changes in fashion trends
could lead to excess inventories and higher markdowns, and continued fashion
misjudgments could have a material adverse effect on the Company's image with
its customers. Sales from private brand merchandise have grown as a percentage
of net sales from 23% in fiscal 1994 to 38% in fiscal 1996. Because the
Company's private brand merchandise generally carries higher merchandise margins
than its other merchandise, the Company's failure to anticipate, identify and
react to fashion trends with its private brand merchandise, particularly if the
percentage of net sales derived from private brand merchandise continues to
increase, may have a greater adverse affect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

EXPANSION AND MANAGEMENT OF GROWTH

Pacific Sunwear's continued growth depends to a significant degree on its
ability to open and operate stores on a profitable basis and on management's
ability to manage the Company's planned expansion. The Company opened an
aggregate of 85 stores during fiscal 1995 and fiscal 1996, bringing the total
number of stores to 209 as of February 2, 1997, representing an increase of
approximately 81% in total square footage. In addition, Pacific Sunwear opened
11 stores in the first thirteen weeks of fiscal 1997 and plans to open
approximately 39 stores and 60 stores during the remainder of fiscal 1997 and in
fiscal 1998, respectively, and expand or relocate 10 to 13 and 10 to 15 existing
stores to larger format stores during the remainder of fiscal 1997 and in fiscal
1998, respectively, representing an additional increase of approximately 78% in
total square footage. The Company's recent and planned expansion includes the
opening of stores in new geographic markets. These new markets have in the past
presented, and may in the future present, competitive and merchandising
challenges that are different from those faced by the Company in its existing
geographic markets. Pacific Sunwear's planned expansion is dependent upon a
number of factors, including the ability of the Company to locate and obtain
favorable store sites, negotiate acceptable lease terms, obtain adequate
merchandise supply and hire and train qualified management level and other
employees. Factors beyond the Company's control may also affect the Company's
ability to expand, including general economic and business conditions affecting
consumer spending. There can be no assurance that the Company will achieve its
planned expansion or that such expansion will be profitable.

If the Company's operations continue to grow, there could be increasing
strain on the Company's resources, and the Company could experience difficulties
relating to a variety of operational matters, including hiring, training and
managing an increasing number of employees, obtaining sufficient quantities of
merchandise from its preferred vendors, obtaining sufficient materials and
contract manufacturers to produce its private brand products, expanding its
distribution facility and enhancing its financial and operating systems. There
can be no assurance that the Company will be able to manage its growth
effectively. Any failure to manage growth could have a material adverse effect
on the Company's business, financial condition and results of operations.

7
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INTRODUCTIONS OF JUNIORS AND FOOTWEAR; LARGER STORE FORMAT

In the second half of fiscal 1995, the Company introduced juniors and
footwear to its merchandise categories in a limited number of stores, and at May
4, 1997 approximately 83% of its stores carried juniors and approximately 35% of
its stores carried footwear. The Company expects these percentages to be
approximately 91% and 56%, respectively, by the end of fiscal 1997. The Company
believes that the addition of juniors and footwear has had a positive impact on
the Company's results of operations. However, the Company believes there are
many additional risks associated with offering juniors and footwear merchandise,
including the risks that (i) the juniors and footwear categories may be more
competitive than most of the Company's other apparel categories, (ii) certain of
the Company's principal vendors for juniors are relatively recent entrants to
this apparel category, (iii) the Company only recently established its
relationships with many of its current vendors for juniors and with all of its
current vendors for footwear, and (iv) the Company's management team does not
have as much experience with respect to the identification and appropriate
reaction to fashion trends in these two new segments. As a result, no assurance
can be given that the addition of juniors and footwear will prove to be
profitable over the longer term.

As a result of the initial favorable results from the introduction of
juniors and footwear, the Company has increased the size of its new stores.
Twenty-six of the 30 new stores opened in fiscal 1996 were in the new larger
format, which averages approximately 3,000 square feet, an increase of
approximately 50% from the average store size for all of the Company's stores as
of the end of fiscal 1995. All of the 11 new stores opened in the first thirteen
weeks of fiscal 1997 were in the new larger format. The Company expects that the
approximately 39 new stores remaining to be opened in fiscal 1997 and 60 new
stores expected to be opened in fiscal 1998 will be in the new larger format. In
addition, the Company expanded or relocated seven and two of its existing stores
to the larger format in fiscal 1996 and the first thirteen weeks of fiscal 1997,
respectively. The Company expects to expand or relocate an additional 10 to 13
and 10 to 15 of its existing stores to the larger format during the remainder of
fiscal 1997 and in fiscal 1998, respectively. The Company believes that the
results to date of its larger store format have been favorable. However, because
of the higher level of expense associated with the opening and operation of the
larger format stores, and the Company's relatively short operating history with
juniors and footwear merchandise, no assurance can be given that the larger
stores will prove to be profitable over the longer term.

RELIANCE ON KEY VENDORS AND PRIVATE BRAND CONTRACT MANUFACTURERS

The Company does not own or operate any manufacturing facilities and does
not have any long term contractual relationships with its vendors and contract
manufacturers. The Company's business is dependent upon its ability to purchase
current season, brand name apparel at competitive prices in adequate quantities
and with timely deliveries. Most of the Company's brand name vendors have
limited resources, production capacities and operating histories, and many have
intentionally limited the distribution of their merchandise. The inability or
unwillingness of key vendors to increase their sales to the Company to keep pace
with the Company's anticipated growth, or the loss of one or more key vendors
for any reason, could have a material adverse effect on the Company's business,
financial condition and results of operations. In fiscal 1996 and in the first
thirteen weeks of fiscal 1997, the Company's three largest vendors in the
aggregate accounted for approximately 21% and 23% of the Company's net sales,
respectively. There can be no assurance that the Company will be able to acquire
brand name merchandise in sufficient quantity and on terms favorable to the
Company in the future. Approximately 38% and 35% of the Company's net sales in
fiscal 1996 and in the first thirteen weeks of fiscal 1997, respectively,
resulted from sales of private brand merchandise manufactured to the Company's
specifications by contract manufacturers. Delays in receiving such private brand
merchandise, or deterioration in the quality thereof, could materially and
adversely affect the Company's business, financial condition and results of
operations. See "Business -- Merchandising."

8
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ECONOMIC CONDITIONS AND CONSUMER SPENDING

The apparel industry historically has been subject to substantial cyclical
variations. The Company's business is sensitive to changing levels of consumer
spending, and the Company's sales and profitability may be adversely affected by
unfavorable local, regional or national economic conditions. Substantially all
of the Company's stores are located in regional shopping malls and the Company's
sales benefit from a high volume of traffic in such malls. The Company therefore
depends in part on the ability of mall "anchor" tenants and other area
attractions, including movie theaters, to generate consumer traffic in the
vicinity of the Company's stores. The Company's sales also depend on the
continuing popularity of malls as shopping and leisure-time destinations for
teens and young adults. Mall traffic and sales volume may be adversely affected
by economic downturns, severe weather, natural disasters, a decrease in the
amount of discretionary income of the Company's customers, the closing of anchor
department stores and declines in the desirability of the shopping environment
in a particular mall, all of which could adversely affect the Company's
business, financial condition and results of operations.

FLUCTUATIONS IN COMPARABLE STORE NET SALES RESULTS

The Company's comparable store net sales results have fluctuated
significantly in the past, on both an annual and quarterly basis, and are
expected to continue to fluctuate in the future. A variety of factors affect the
Company's comparable store net sales results, including general economic
conditions, fashion trends, the retail sales environment, the timing of
promotional events, changes in the Company's merchandise mix, calendar shifts of
holiday periods, actions by competitors and weather conditions. Although
comparable store net sales increased in each quarter of fiscal 1996 and in the
first quarter of fiscal 1997, the Company experienced decreases in comparable
store net sales in each of the first three quarters of fiscal 1995 and for
fiscal 1995 as a whole, and there can be no assurances that the comparable store
net sales results for any particular fiscal quarter or fiscal year in the future
will not decrease. The Company's future comparable store net sales results are
likely to have a significant effect on the market price of the Company's Common
Stock.

GEOGRAPHIC CONCENTRATION

As of May 4, 1997, the Company operated approximately 26%, 23% and 22% of
its stores in the Northeast, the Midwest and California, respectively, and plans
to expand within its existing markets and to enter new markets. As a result, the
Company will be susceptible to fluctuations in its business caused by severe
weather, natural disasters or adverse economic conditions in one or more of
these geographic regions and in any other regions in which the Company
establishes a significant presence, which could have a material adverse effect
on the Company's business, financial condition and results of operations.

DEPENDENCE ON SINGLE DISTRIBUTION FACILITY

The Company's distribution functions for all of its stores are handled from
a single facility in Anaheim, California. The Company intends to relocate its
distribution center in 1998 to a larger facility. Any significant interruption
in the operation of the distribution facility, due to relocation or otherwise,
would have a material adverse effect on the Company's business, financial
condition and results of operations.

FOREIGN MERCHANDISE SOURCING

A significant portion of the Company's private brand merchandise is
manufactured outside the United States, principally in Asia and Mexico, through
arrangements with contract manufacturers. As a result, the Company's operations
are subject to the risks generally associated with doing business abroad, such
as foreign government regulations, political instability, the imposition of
additional regulations relating to imports, the imposition of additional duties,
taxes and other charges on imports,

9
<PAGE> 11

significant fluctuations in the value of the dollar against foreign currencies
or restrictions on the transfer of funds. The inability of a contract
manufacturer to ship orders in a timely manner could cause the Company to fail
to meet the merchandise requirements of its stores for those items, which could
result in lost sales and dissatisfied customers. Any significant interruption in
the Company's foreign sourcing would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Merchandising."

SEASONALITY AND QUARTERLY RESULTS

The Company's business is seasonal by nature, with the Christmas and
back-to-school periods historically accounting for the largest percentage of
annual net sales. The Company's first quarter historically accounts for the
smallest percentage of annual net sales. In fiscal 1996 and fiscal 1995,
excluding sales generated by new and expanded or relocated stores, the Christmas
and back-to-school periods together accounted for approximately 36% of the
Company's annual net sales and a higher percentage of the Company's operating
income. In fiscal 1996, excluding net sales generated by new and expanded or
relocated stores, approximately 43% of the Company's annual net sales occurred
in the first half of the fiscal year and 57% occurred in the second half. The
Company's quarterly results of operations may also fluctuate significantly as a
result of a variety of factors, including the timing of store openings, the
amount of revenue contributed by new stores, changes in the mix of products
sold, the timing and level of markdowns, the timing of store closings,
expansions and relocations, competitive factors and general economic conditions.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

COMPETITION

The retail apparel business is highly competitive. Pacific Sunwear competes
on a national level with certain leading department stores and national retail
chains which offer the same or similar brands and styles of merchandise. Pacific
Sunwear also competes with a wide variety of regional and local specialty
stores. Many of Pacific Sunwear's competitors are larger and have significantly
greater resources than the Company, and there is no assurance that the Company
will compete successfully in the future. See "Business -- Competition."

RELIANCE ON KEY PERSONNEL

The continued success of the Company is dependent to a significant degree
upon the services of its key personnel, particularly its executive officers. The
loss of the services of any member of senior management could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's success in the future will also be dependent upon the
Company's ability to attract and retain qualified personnel. The Company's
inability to attract and retain such additional qualified personnel in the
future could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management."

ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BYLAW PROVISIONS

Certain provisions of the Company's articles of incorporation and bylaws
may be deemed to have anti-takeover effects and may discourage, delay or prevent
a takeover attempt that might be considered in the best interests of the
shareholders of the Company. These provisions, among other things: (i) classify
the Company's Board of Directors into two classes of directors with each class
serving staggered two-year terms if there are at least six but less than nine
directors, and into three classes of directors with each class serving staggered
three-year terms, if the number of directors is nine or more; (ii) eliminate
cumulative voting rights; and (iii) authorize the issuance of "blank check"
preferred stock having such designations, rights and preferences as may be
determined from time to time by the Board of Directors, without any vote or
further action by the shareholders of the Company.

10
<PAGE> 12

VOLATILITY OF STOCK PRICE

The market price of the Company's Common Stock has fluctuated substantially
since the Company's initial public offering in March 1993. There can be no
assurance that the market price of the Common Stock will not continue to
fluctuate significantly. Future announcements concerning the Company or its
competitors, quarterly variations in operating results or comparable store net
sales, the introduction of new merchandise or changes in pricing policies by the
Company, its vendors or its competitors, changes in earnings estimates by
analysts or changes in accounting policies, among other factors, could cause the
market price of the Common Stock to fluctuate substantially. In addition, stock
markets have experienced extreme price and volume volatility in recent years.
This volatility has had a substantial effect on the market prices of securities
of many small public companies for reasons frequently unrelated to the operating
performance of the specific companies. These broad market fluctuations could
adversely affect the market price of the Common Stock. See "Price Range of
Common Stock."

IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), and the
Company intends that such forward-looking statements be subject to the safe
harbors created thereby. These forward-looking statements include the plans and
objectives of management for future operations, including plans and objectives
relating to the future economic performance of the Company. The forward-looking
statements and associated risks set forth in this Prospectus may include or
relate to: (i) the planned opening of approximately 39 stores and 60 stores
during the remainder of fiscal 1997 and in fiscal 1998, respectively, and
expansion or relocation of 10 to 13 and 10 to 15 stores during the remainder of
fiscal 1997 and in fiscal 1998, respectively; (ii) the increase in the average
new store size; (iii) the success of the Company's juniors and footwear
merchandising initiatives; (iv) statements regarding increased sales per store
and sales growth as a consequence of adding new stores; (v) the timely
availability of branded and private brand merchandise in sufficient quantities
to satisfy customer demand; (vi) the growth in store operating and general and
administrative expenses as a result of store expansion; and (vii) the
sufficiency of the Company's working capital, bank line of credit and cash flow
from operating activities, combined with the net proceeds from the sale of
Common Stock offered hereby, for the Company's future operating and capital
expenditure requirements.

The forward-looking statements are further qualified by important factors
that could cause actual results to differ materially from those in the
forward-looking statements, including, without limitation, the following: (i)
the ability of the Company to gauge the fashion tastes of its customers and
provide merchandise that satisfies customer demand; (ii) the level of demand for
the merchandise offered by the Company; (iii) the ability of the Company to
locate and obtain favorable store sites, negotiate acceptable lease terms, and
hire and train employees; (iv) management's ability to manage the Company's
planned expansion; (v) the availability of merchandise from the Company's
vendors and private brand sources; (vi) the effect of economic conditions; (vii)
the effect of severe weather or natural disasters; (viii) the effect of
competitive pressures from other retailers, particularly including those in the
recently introduced juniors and footwear categories; and (ix) foreign trade
relationships, including any disruption of trade with the countries in which the
Company's private brand contract manufacturers are located. Results actually
achieved thus may differ materially from expected results in these statements.

11
<PAGE> 13

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 700,000 shares of
Common Stock offered hereby are estimated to be $23.3 million ($26.8 million if
the Underwriters' over-allotment option is exercised in full) assuming a public
offering price of $35.75 per share, after deducting estimated underwriting
discounts and commissions and offering expenses payable by the Company.

The Company intends to use the net proceeds to open new larger format
stores during the remainder of fiscal 1997 and in fiscal 1998, to expand or
relocate certain existing stores during the remainder of fiscal 1997 and in
fiscal 1998, and to relocate its distribution center and corporate offices in
fiscal 1998. See "Business -- Stores -- Expansion." Pending the foregoing, the
Company will invest the net proceeds in short-term, investment grade,
interest-bearing obligations. The Company on occasion reviews possible business
and store acquisitions and expects that it will continue to explore possible
acquisitions to expand its operations. The Company is not currently a party to
any agreement or understanding with respect to any prospective acquisition.

DIVIDEND POLICY

The Company has never paid any cash dividends on its Common Stock and does
not intend to pay any cash dividends on its Common Stock in the foreseeable
future. In addition, the Company's current line of credit arrangement prohibits
the payment of cash dividends on its capital stock.

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "PSUN." The following table sets forth, for the Company's fiscal
periods indicated, the range of high and low prices per share for the Common
Stock, as adjusted to reflect the three-for-two stock split of the Company's
Common Stock effected in October 1996, as reported by the Nasdaq National
Market:

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1995
First Quarter............................................ $ 9.83 $ 4.83
Second Quarter........................................... 5.67 3.63
Third Quarter............................................ 5.67 3.67
Fourth Quarter........................................... 7.00 4.33

FISCAL 1996
First Quarter............................................ $12.67 $ 4.67
Second Quarter........................................... 17.50 8.84
Third Quarter............................................ 25.00 12.50
Fourth Quarter........................................... 29.50 20.06

FISCAL 1997
First Quarter............................................ $36.25 $25.75
Second Quarter (through May 28, 1997).................... 36.25 30.13
</TABLE>

On May 28, 1997, the last reported sale price of the Common Stock as
reported by the Nasdaq National Market was $35.75 per share. As of May 23, 1997
there were approximately 98 holders of record of the Common Stock, and the
number of beneficial holders of the Common Stock was estimated to be in excess
of 900.

12
<PAGE> 14

CAPITALIZATION

The following table sets forth the actual capitalization of Pacific Sunwear
as of May 4, 1997, and as adjusted to reflect the receipt of the estimated net
proceeds from the issuance and sale of the 700,000 shares of Common Stock
offered hereby at an assumed public offering price of $35.75 per share and the
application of the estimated net proceeds therefrom:

<TABLE>
<CAPTION>
MAY 4, 1997
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(in thousands)
<S> <C> <C>
Long-term debt................................................. $ -- $ --
Shareholders' equity:
Common Stock, $.01 par value: 22,500,000 shares authorized,
8,135,134 outstanding, actual; 8,835,134 outstanding, as
adjusted(1)............................................... 81 88
Additional paid-in capital................................... 31,292 54,559
Retained earnings............................................ 17,852 17,852
------- -------
Total shareholders' equity................................ 49,225 72,499
------- -------
Total capitalization................................. $49,225 $72,499
======= =======
</TABLE>

- ---------------

13
<PAGE> 15

SELECTED FINANCIAL DATA

The following balance sheet and income statement data as of February 2,
1997 and February 4, 1996, and for each of the three fiscal years in the period
ended February 2, 1997 are derived from the financial statements of the Company,
which were audited by Deloitte & Touche LLP, independent auditors, and are
included elsewhere herein. The balance sheet and income statement data as of
January 29, 1995, January 30, 1994 and January 31, 1993 and for the two fiscal
years in the period ended January 30, 1994 were derived from the Company's
audited financial statements for such years. The selected financial data as of
and for the thirteen weeks ended May 4, 1997 and May 5, 1996 have been derived
from unaudited financial statements of the Company. In the opinion of the
Company, the unaudited financial information contains all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the results of operations for such periods. The results for the
thirteen weeks ended May 4, 1997 may not be indicative of the results to be
achieved for the entire fiscal year. The information set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Company's Financial Statements and
related Notes thereto and other financial information included elsewhere in this
Prospectus or incorporated herein by reference.

<TABLE>
<CAPTION>
THIRTEEN WEEKS
FISCAL YEAR ENDED(1) ENDED(2)
---------------------------------------------------- -------------------
JAN. 31, JAN. 30, JAN. 29, FEB. 4, FEB. 2, MAY 5, MAY 4,
1993 1994 1995 1996 1997 1996 1997
-------- -------- -------- -------- -------- -------- --------
(in thousands, except per share and selected operating data)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............................. $ 45,787 $ 54,928 $ 85,316 $112,921 $155,261 $ 27,641 $ 38,933
Cost of goods sold (including buying,
distribution and occupancy costs).... 31,195 38,240 59,481 80,788 106,126 20,363 27,226
-------- -------- -------- -------- -------- -------- --------
Gross margin........................... 14,592 16,688 25,835 32,133 49,135 7,278 11,707
Selling, general and administrative
expenses............................. 10,650 12,787 20,033 27,996 37,126 7,576 9,943
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)................ 3,942 3,901 5,802 4,137 12,009 (298) 1,764
Interest income (expense), net......... (51) 403 307 63 237 29 96
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income tax expense
(benefit)............................ 3,891 4,304 6,109 4,200 12,246 (269) 1,860
Income tax expense (benefit)........... 870 1,593 2,258 1,576 4,834 (99) 736
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...................... $ 3,021 $ 2,711 $ 3,851 $ 2,624 $ 7,412 $ (170) $ 1,124
======== ======== ======== ======== ======== ======== ========
Net income (loss) per share(3)......... $ 0.60 $ 0.35 $ 0.48 $ 0.33 $ 0.89 $ (0.02) $ 0.13
======== ======== ======== ======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding(3)..... 5,364 7,691 7,977 8,023 8,303 7,892 8,443
SELECTED OPERATING DATA:
Stores open at end of period........... 60 83(4) 128 182 209 191 219
Stores opened during period............ 8 24 46 55 30 9 11
Stores closed during period............ 1 0 1 1 3 0 1
Capital expenditures (000's)........... $ 1,090 $ 7,756 $ 11,474 $ 9,761 $ 8,126 $ 1,521 $ 3,657
Average net sales per gross square
foot(5)(6)........................... $ 428 $ 388 $ 378 $ 340 $ 377 $ 75 $ 84
Average net sales per store(5)(6)...... $818,000 $766,000 $761,000 $684,000 $792,000 $150,000 $184,000
Square footage of gross store space at
end of period........................ 115,410 168,552 251,537 364,069 455,607 391,158 487,835
Comparable store net sales increase
(decrease)(6)(7)..................... 23.0% (2.1)% 2.3% (2.2)% 15.7% 10.5% 17.5%
BALANCE SHEET DATA:
Working capital........................ $ 4,585 $ 19,021 $ 16,436 $ 14,800 $ 21,690 $ 14,585 $ 21,414
Total assets........................... 15,870 36,680 45,295 51,471 65,705 55,635 68,338
Long-term debt......................... 137 15 781 406 -- -- --
Shareholders' equity................... 1,042 31,165 35,420 38,309 47,546 38,628 49,225
</TABLE>

14
<PAGE> 16

- ---------------

(1) Except for the fiscal year ended February 4, 1996, which included 53 weeks,
all fiscal years presented included 52 weeks.

(2) The business of the Company is seasonal and results for any period less than
a full fiscal year are not necessarily indicative of results that may be
achieved for a full fiscal year. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Seasonality and
Quarterly Results."

(3) Adjusted to give effect to a three-for-two stock split effected as of
October 9, 1996.

(4) Three of the Company's stores were closed temporarily due to damage suffered
in an earthquake in January 1994 centered in Northridge, California. Two of
these stores, which reopened in fiscal 1994, are included in the number of
stores open at January 30, 1994. The third store, located in Northridge, was
reopened in fiscal 1995 and was treated as a new store opened during that
period, and is not included in the number of stores open at January 30,
1994.

(5) For purposes of calculating these amounts, the amount of square footage and
the number of stores reflect the number of months during the period that new
stores and stores that were closed during the period were open.

(6) These amounts have been adjusted to exclude the effect of the fifty-third
week in the fiscal year ended February 4, 1996.

(7) For the fiscal years ended on or before January 30, 1994, comparable stores
were defined as those stores open at least one year as of the beginning of
the applicable fiscal year. Effective January 31, 1994, the Company changed
the way comparable store net sales are calculated. For the fiscal year ended
January 29, 1995 and thereafter, stores are deemed comparable stores on the
first day of the first month following the one-year anniversary of their
opening. Commencing in fiscal 1996, in conjunction with the expansion or
relocation of certain stores to the larger format, the Company excluded from
comparable store net sales calculations each such store's net sales results
beginning on the first day of the month of its expansion or relocation. Each
of these stores will be deemed a comparable store on the first day of the
first month following the one-year anniversary of its expansion or
relocation.

15
<PAGE> 17

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere in
this Prospectus.

OVERVIEW

Pacific Sunwear is a leading mall-based specialty retailer of everyday
casual apparel, accessories and footwear designed to meet the lifestyle needs of
active teens and young adults. The Company has expanded from 11 stores in
California at the end of fiscal 1986 to 219 stores in 33 states at May 4, 1997.
The Company's stores are concentrated in three regions: the Northeast (26%), the
Midwest (23%) and California (22%).

Since mid-1995, Pacific Sunwear has implemented several strategic
merchandising initiatives which it believes have enhanced its ability to serve
the fashion needs of its customers. The Company significantly expanded its pant
assortment for young men chainwide in order to address the apparel needs of its
customers in general and the needs of customers in colder climate regions such
as the Northeast and Midwest in particular. In addition, the Company introduced
the categories of juniors and footwear on a test basis in a limited number of
stores beginning in the summer of 1995. The Company introduced juniors in an
effort to broaden its customer base, as well as to provide its existing female
customers with a wider array of apparel choices. Footwear was introduced in
response to customer demand and has allowed the Company to provide its customers
with a complete wardrobe for the casual teen lifestyle. These strategic
initiatives were introduced during a period in which the Company's business was
adversely affected by a number of factors, including a weak retail apparel
market, an underrepresentation of pants in the Company's stores, particularly
those located in colder climates, a shift in juniors fashion towards a more
fitted and feminine style and a decrease in sales of merchandise supplied by one
of the Company's key vendors.

Based on the initial success of these merchandising initiatives, Pacific
Sunwear decided in late 1995 to increase its prototype store size from
approximately 2,000 to approximately 3,000 square feet. In fiscal 1996, the
Company slowed the rate of its new store expansion to 30 stores from 55 stores
in fiscal 1995, while focusing on the rollout of its new merchandise categories
in both existing and new stores. In fiscal 1996 and in the first thirteen weeks
of fiscal 1997, each of the 30 and 11 stores opened, respectively, carried
juniors and footwear. Of these stores, 26 of the 30 opened in fiscal 1996 and
all 11 opened in the first thirteen weeks of fiscal 1997 were in the larger
format. In fiscal 1996, the Company also began enlarging the size of certain
existing stores through a limited number of expansions and relocations. The
following table sets forth certain information regarding the Company's stores at
specified dates:

<TABLE>
<CAPTION>
JULY 30, FEB. 4, FEB. 2, MAY 4,
1995 1996 1997 1997
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Stores with:
Young men's, juniors and footwear............ 0 25 64 77
Young men's and juniors...................... 0 5 67 105
--- --- --- ---
Total stores with juniors............ 0 30 131 182
Young men's only............................. 162 152 78 37
--- --- --- ---
Total stores......................... 162 182 209 219
=== === === ===
Larger format stores........................... 0 0 33 46
</TABLE>

The Company believes that its recent financial results reflect the
successful implementation of these recent strategic initiatives as well as an
improved retail apparel market. In fiscal 1996 and in the

16
<PAGE> 18

first thirteen weeks of fiscal 1997, comparable store net sales increased 15.7%
and 17.5%, respectively, relative to the prior comparable periods. These
increases in comparable store net sales were primarily attributable to the
addition of juniors and footwear and, to a lesser extent, to an improvement in
Pacific Sunwear's young men's business as evidenced in fiscal 1996 and the first
thirteen weeks of fiscal 1997 by a 7.1% and 11.3% increase, respectively, in
comparable store net sales in the stores carrying only young men's apparel.

For the fiscal years ended on or before January 30, 1994, comparable stores
were defined as those stores open at least one year as of the beginning of the
applicable fiscal year. Effective January 31, 1994, the Company changed the way
comparable store net sales are calculated. For the fiscal year ended January 29,
1995 and thereafter, stores are deemed comparable stores on the first day of the
first month following the one-year anniversary of their opening. Commencing in
fiscal 1996, in conjunction with the expansion or relocation of certain stores
to the larger format, the Company excluded from comparable store net sales
calculations each such store's net sales results beginning on the first day of
the month of its expansion or relocation. Each of these stores will be deemed a
comparable store on the first day of the first month following the one-year
anniversary of its expansion or relocation.

RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto contained elsewhere herein. The
following table sets forth selected income statement data of the Company
expressed as a percentage of net sales for the fiscal years indicated:

<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
FISCAL YEAR ENDED
---------------------------------- --------------------
JAN. 29, FEB. 4, FEB. 2, MAY 5, MAY 4,
1995 1996 1997 1996 1997
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold (including
buying, distribution and
occupancy costs)................ 69.7 71.5 68.4 73.6 69.9
----- ----- ----- ----- -----
Gross margin...................... 30.3 28.5 31.6 26.4 30.1
Selling, general and
administrative expenses......... 23.5 24.8 23.9 27.5 25.5
----- ----- ----- ----- -----
Operating income (loss)........... 6.8 3.7 7.7 (1.1) 4.6
Interest income, net.............. 0.4 -- 0.2 0.1 0.2
----- ----- ----- ----- -----
Income (loss) before income tax
expense (benefit)............... 7.2 3.7 7.9 (1.0) 4.8
Income tax expense (benefit)...... 2.7 1.4 3.1 (0.4) 1.9
----- ----- ----- ----- -----
Net income (loss)................. 4.5% 2.3% 4.8% (0.6)% 2.9%
===== ===== ===== ===== =====
Number of stores open at end of
period.......................... 128 182 209 191 219
</TABLE>

THIRTEEN WEEKS ENDED MAY 4, 1997 COMPARED TO THIRTEEN WEEKS ENDED MAY 5, 1996

Net Sales

Net sales increased to $38.9 million for the first thirteen weeks of fiscal
1997 from $27.6 million for the first thirteen weeks of fiscal 1996, an increase
of $11.3 million, or 40.9%. Of this $11.3 million increase, $5.8 million was
attributable to net sales generated by new stores opened in fiscal 1996 and not
yet included in the comparable store base, $4.5 million was attributable to a
17.5% increase in comparable store net sales in the first thirteen weeks of
fiscal 1997, $.7 million was attributable to nine stores that have been expanded
or relocated to the larger format and not yet included in the comparable store
base, and $.6 million was attributable to net sales generated by 11 new stores
opened in fiscal 1997 and not yet included in the comparable store base.
Offsetting these increases was a $.3 million decrease attributable to the
closing of four stores. The increase in comparable store net

17
<PAGE> 19

sales was primarily attributable to the addition of footwear and juniors to
certain of the Company's stores and, to a lesser extent, to increases in sales
of young men's merchandise. Net sales of footwear and juniors represented
approximately 19% of total net sales for the first thirteen weeks of fiscal 1997
compared to 6% for the first thirteen weeks of fiscal 1996. The average retail
price per unit sold increased approximately 11% in the first thirteen weeks of
fiscal 1997 compared to the first thirteen weeks of fiscal 1996, primarily
attributable to a change in the mix of products sold, including the addition of
footwear, an increase in sales of pants as a percentage of net sales and a
decrease in T-shirt sales as a percentage of net sales.

Gross Margin

Gross margin, after buying, distribution and occupancy costs, increased to
$11.7 million for the first thirteen weeks of fiscal 1997 from $7.3 million for
the first thirteen weeks of fiscal 1996, an increase of $4.4 million, or 60.3%.
As a percentage of net sales, gross margin increased to 30.1% from 26.4%. Of
this 3.7% increase, 2.5% was due to a decrease in occupancy costs as a
percentage of net sales which was related primarily to an increase in comparable
store net sales. In addition, net merchandise margins increased 1.0% as a
percentage of net sales for the first thirteen weeks of fiscal 1997 compared to
the first thirteen weeks of fiscal 1996 primarily due to an increase in initial
markup and a decrease in markdowns as a percentage of net sales. Furthermore,
buying and distribution costs decreased by .2% as a percentage of net sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $9.9 million for
the first thirteen weeks of fiscal 1997 from $7.6 million for the first thirteen
weeks of fiscal 1996, an increase of $2.3 million, or 30.3%. As a percentage of
net sales, these expenses decreased to 25.5% from 27.5%. Of this 2.0% decrease
as a percentage of net sales, 1.9% was attributable to a decrease in store
selling expenses as a percentage of net sales primarily as a result of an
increase in comparable store net sales and higher total net sales and .6% was
due to a decrease in general and administrative expenses as a percentage of net
sales as a result of leveraging these expenses over higher total net sales.
Partially offsetting this decrease was an increase of .5% due to increased
expansion and relocation expenses and closing expenses as a percentage of net
sales compared to the first thirteen weeks of fiscal 1996.

Income Tax Expense (Benefit)

Income tax expense was $.7 million in the first thirteen weeks of fiscal
1997 compared to an income tax benefit of $.1 million for the first thirteen
weeks of fiscal 1996. The effective income tax rate for the first thirteen weeks
of fiscal 1997 was 39.6% compared to a benefit of 36.9% for the first thirteen
weeks of fiscal 1996.

FISCAL 1996 COMPARED TO FISCAL 1995

Net Sales

Net sales increased to $155.3 million in fiscal 1996 from $112.9 million in
fiscal 1995, an increase of $42.4 million, or 37.6%. Of this $42.4 million
increase, $17.1 million was attributable to a 15.7% increase in comparable store
net sales in fiscal 1996 compared to the comparable fifty-two week period ended
February 4, 1996, $14.4 million was attributable to net sales generated by 30
new stores opened in fiscal 1996, $11.1 million was attributable to net sales
generated by stores opened prior to fiscal 1996 and not yet included in the
comparable store base, and $.9 million was attributable to the expansion or
relocation of seven existing stores not yet included in the comparable store
base. Partially offsetting this increase was a $.9 million decrease in net sales
attributable to a one week shift in the fiscal calendar, which was caused by a
change in the measurement period used for period-to-period comparisons (fiscal
1996 was a 52-week period and fiscal 1995 was a 53-week period) and a $.2
million decrease in net sales attributable to the closing of three stores. The
increase in comparable store net

18
<PAGE> 20

sales was primarily attributable to the addition of footwear and juniors to
certain of the Company's stores and, to a lesser extent, to increases in sales
of young men's merchandise. In fiscal 1996, the Company significantly expanded
the number of stores offering footwear and juniors. Sales of this merchandise
represented approximately 12% of net sales in fiscal 1996 as compared to
approximately 1% of net sales in fiscal 1995. As a result of a change in the mix
of products sold, including the addition of footwear, an increase in the sales
of pants as a percentage of net sales and a decrease in T-shirt sales as a
percentage of net sales, the average retail price per unit sold increased
approximately 10% in fiscal 1996 compared to fiscal 1995.

Gross Margin

Gross margin, after buying, distribution and occupancy costs, increased to
$49.1 million in fiscal 1996 from $32.1 million in fiscal 1995, an increase of
$17.0 million, or 53.0%. As a percentage of net sales, gross margin increased to
31.6% from 28.5%. Of this 3.1% increase in gross margin as a percentage of net
sales, 2.0% was due to a decrease in occupancy costs as a percentage of net
sales, which was primarily related to an increase in comparable store net sales.
In addition, merchandise margins increased 1.1% as a percentage of net sales in
fiscal 1996 compared to fiscal 1995, primarily due to an increase in sales of
higher margin private brand merchandise as a percentage of net sales and
improved sourcing of private brand merchandise, as well as a slight decrease in
the markdown rate.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $37.1 million in
fiscal 1996 from $28.0 million in fiscal 1995, an increase of $9.1 million, or
32.5%. As a percentage of net sales, these expenses decreased to 23.9% from
24.8%. Of this .9% decrease as a percentage of net sales, .9% was due to a
decrease in general and administrative expenses as a percentage of net sales as
a result of leveraging these expenses over higher net sales, and .7% was
attributable to a decrease in store selling expenses as a percentage of net
sales primarily as a result of an increase in comparable store net sales.
Partially offsetting this decrease was an increase of .7% due to increased store
expansion and relocation expenses and closing expenses as a percentage of net
sales as a result of increased write-offs of store leasehold improvements and
furniture and fixtures.

Income Tax Expense

Income tax expense was $4.8 million in fiscal 1996 compared to $1.6 million
in fiscal 1995. The effective income tax rate in fiscal 1996 was 39.5% compared
to 37.5% in fiscal 1995. The higher effective income tax rate in fiscal 1996 was
primarily due to an increase in taxable interest income in fiscal 1996. Interest
income in fiscal 1995 was mostly non-taxable.

FISCAL 1995 COMPARED TO FISCAL 1994

Net Sales

Net sales increased to $112.9 million in fiscal 1995 from $85.3 million in
fiscal 1994, an increase of $27.6 million, or 32.4%. Of this $27.6 million
increase, $20.1 million was attributable to sales generated by 55 new stores
opened in fiscal 1995, $8.1 million was attributable to sales generated by
stores opened prior to fiscal 1995 and not yet included in the comparable store
base and $1.2 million was attributable to the fifty-third week in fiscal 1995
(fiscal 1994 had 52 weeks). Offsetting this increase was a decrease of $1.8
million attributable to a 2.2% decrease in comparable store net sales in fiscal
1995. This decrease in comparable store net sales was attributable, in part, to
unfavorable weather conditions in the first quarter of fiscal 1995 and a
decrease in fiscal 1995 sales of merchandise supplied by one of the Company's
key vendors. The average retail price per unit sold of the Company's merchandise
remained relatively unchanged in fiscal 1995 compared to fiscal 1994.

19
<PAGE> 21

Gross Margin

Gross margin, after buying, distribution and occupancy costs, increased to
$32.1 million in fiscal 1995 from $25.8 million in fiscal 1994, an increase of
$6.3 million, or 24.4%. As a percentage of net sales, gross margin decreased to
28.5% from 30.3%. Of this 1.8% decrease in gross margin as a percentage of net
sales, 1.1% was due to an increase in occupancy costs and .7% was due to a
decrease in merchandise margins. The increase in occupancy costs was primarily
due to opening 55 new stores with lower sales volumes than mature stores and
therefore higher occupancy costs as a percentage of net sales. The decrease in
merchandise margins was due to higher markdowns partially offset by higher
initial mark-up compared to fiscal 1994.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $28.0 million in
fiscal 1995 from $20.0 million in fiscal 1994, an increase of $8.0 million, or
40.0%. As a percentage of net sales, these expenses increased to 24.8% from
23.5%. Of this 1.3% increase as a percentage of net sales, 1.7% was due to
higher store selling expenses as a percentage of net sales associated with 55
new stores opened in fiscal 1995 and lower comparable store net sales, partially
offset by a decrease of .4% in general and administrative expenses.
Historically, sales volumes in new stores have generally increased during the
first four years of operation, while store selling expenses have generally been
fixed.

Income Tax Expense

Income tax expense was $1.6 million for fiscal 1995 compared to income tax
expense of $2.3 million in fiscal 1994. The effective income tax rate in fiscal
1995 was 37.5% compared to 37.0% in fiscal 1994. The higher effective income tax
rate for fiscal 1995 compared to fiscal 1994 was primarily attributable to lower
amounts of non-taxable interest income in fiscal 1995.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations from internally generated cash
flow, short-term borrowings and equity financing. The Company's primary capital
requirements have been for the construction of new stores, remodeling,
relocation or expansion of selected existing stores and financing of
inventories.

Net cash provided by operating activities for fiscal 1996 and 1995 was
$13.5 million and $4.7 million, respectively, and for the first thirteen weeks
of fiscal 1997 and fiscal 1996 was $.8 million and $2.6 million, respectively.
Working capital at the end of fiscal 1996 and 1995 was $21.7 million and $14.8
million, respectively, and at May 4, 1997 and May 5, 1996 was $21.4 million and
$14.6 million, respectively. Inventories at May 4, 1997 were $22.5 million
compared to $19.8 million at February 2, 1997, an increase of $2.7 million. The
Company's average store inventories vary throughout the year and increase in
advance of the peak selling periods of spring break, back-to-school and
Christmas. The increase in inventories at May 4, 1997 was primarily related to
opening 11 new stores, relocating two stores with 50% larger average square
footage than existing stores and the addition of juniors to 39 of the Company's
existing stores.

Net cash used in investing activities in fiscal 1996 and 1995 was $8.1
million and $2.3 million, respectively, and in the first thirteen weeks of
fiscal 1997 and fiscal 1996 was $3.7 million and $1.5 million, respectively. Net
cash used for investment in property and equipment in fiscal 1996 and fiscal
1995 was $8.1 million and $9.8 million, respectively, and in the first thirteen
weeks of fiscal 1997 and fiscal 1996 was $3.7 million and $1.5 million,
respectively. These expenditures related primarily to the construction of new
stores and, to a lesser extent, remodeling, expansion and relocation costs. In
fiscal 1996, $5.3 million was used for the 30 new stores opened in fiscal 1996
and $1.3 million was used for the relocation and expansion of seven existing
stores in fiscal 1996. In addition, in fiscal 1996 $1.5 million was used for
store remodeling costs, new stores to be opened in fiscal 1997, store
expansions/relocations to be completed in fiscal 1997, computer hardware and
software costs, and

20
<PAGE> 22

leasehold improvements and furniture and fixtures for the Company's corporate
offices and distribution center. In the first thirteen weeks of fiscal 1997,
$1.8 million was expended for the 11 new stores, $.8 million for new stores to
be opened during the remainder of fiscal 1997, $.5 million for expansions or
relocations of certain existing stores, and $.6 million for remodeling existing
stores and computer hardware and software costs.

Net cash provided by (used in) financing activities in fiscal 1996 and
fiscal 1995 was $.3 million and $(.1) million, respectively, and in the first
thirteen weeks of fiscal 1997 and fiscal 1996 was $.1 million and $(.3) million,
respectively. In fiscal 1996, the Company repaid a term loan from its bank of
$.8 million. In the first thirteen weeks of fiscal 1997, the Company made no
borrowings or payments under its loan agreement, compared to repayment of a term
loan with its bank of $.8 million in the first thirteen weeks of fiscal 1996. In
fiscal 1996 and fiscal 1995, the Company received proceeds of $1.1 million and
$.3 million, respectively, from the exercise of stock options. In the first
thirteen weeks of fiscal 1997, the Company received proceeds of $.1 million from
the exercise of stock options compared to $.5 million in the first thirteen
weeks of fiscal 1996.

The Company has a credit facility with a bank which expires in August 1998.
The credit facility provides for an $11.5 million line of credit, which includes
sub-limits of $7.5 million each for cash advances and commercial letters of
credit. Interest on advances under the line of credit facility is payable
monthly at the bank's prime rate (8.50% at May 4, 1997). At May 4, 1997, the
Company had $3.1 million in letters of credit outstanding and no cash advances
outstanding. The loan agreement subjects the Company to various restrictive
covenants, including maintenance of certain financial ratios and prohibits
payment of cash dividends on capital stock.

The Company has minimum annual rental commitments under existing store
leases and the lease for its corporate offices and distribution center of
approximately $15.8 million in fiscal 1997 and $16.1 million in fiscal 1998.

In fiscal 1996, the Company's average cost to build a new store, including
leasehold improvements, furniture and fixtures and landlord allowances, was
approximately $193,000. In fiscal 1996, the average cost of expanding or
relocating stores was approximately $239,000. The average total cost to build
new stores will vary in the future, depending on various factors, including
local construction costs, changes in store design and landlord allowances. The
Company's average initial inventory for new stores opened in fiscal 1996 was
approximately $130,000. In the first thirteen weeks of fiscal 1997 and in the
first thirteen weeks of fiscal 1996, the Company's average initial inventory for
new stores was approximately $115,000 and $122,000, respectively.

The Company plans to open approximately 39 stores and 60 stores during the
remainder of fiscal 1997 and in fiscal 1998, respectively, expand or relocate 10
to 13 and 10 to 15 existing stores during the remainder of fiscal 1997 and in
fiscal 1998, respectively, and relocate its corporate offices and distribution
center in fiscal 1998. The Company estimates that capital expenditures during
the remainder of fiscal 1997 and in fiscal 1998 will total approximately $12
million and $19 million, respectively.

The Company reviews the operating performance of its stores on an ongoing
basis to determine which stores, if any, to expand, relocate or close. The
Company closed one store in the first quarter of fiscal 1997 and anticipates
closing two additional stores during the remainder of fiscal 1997.

Management believes that the Company's working capital, bank line of credit
and cash flow from operating activities, combined with the net proceeds from the
sale of Common Stock hereby, will be sufficient to meet the Company's operating
and capital expenditure requirements through the end of fiscal 1998.

NEW ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS No. 128") which is effective for

21
<PAGE> 23

financial statements issued for periods ending after December 15, 1997. SFAS No.
128 requires the disclosure of basic and diluted earnings per share. For the
year ended February 2, 1997 and the thirteen weeks ended May 4, 1997 the amount
reported as net income per common and common equivalent share is not materially
different from that which would have been reported for basic and diluted
earnings per share in accordance with SFAS No. 128.

In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123")
which requires adoption of the disclosure provisions no later than fiscal years
beginning after December 15, 1995 and adoption of the recognition and
measurement provisions for non-employee transactions no later than fiscal years
beginning after December 15, 1995. SFAS No. 123 defines a fair value method of
accounting for stock options and other equity instruments. Under the fair value
method, compensation cost is measured at the grant date based on the fair value
of the award and is recognized over the service period which is usually the
vesting period. The Company will continue to apply APB Opinion No. 25 to its
stock-based compensation awards to employees and will disclose the required pro
forma effect on net income and earnings per share in its financial statements.

In March 1995, the FASB issued Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to Be Disposed Of" ("SFAS No. 121"). SFAS No. 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used and
long-lived assets and certain identifiable intangibles to be disposed of. The
Company adopted SFAS No. 121 in the first interim period of fiscal 1996 and such
adoption did not impact its financial position or results of operations.

INFLATION

The Company does not believe that inflation has had a material effect on
the results of operations in the recent past. There can be no assurance that the
Company's business will not be affected by inflation in the future.

SEASONALITY AND QUARTERLY RESULTS

The Company's business is seasonal by nature, with the Christmas and
back-to-school periods historically accounting for the largest percentage of
annual net sales. The Company's first quarter historically accounts for the
smallest percentage of annual net sales. In fiscal 1996 and fiscal 1995,
excluding sales generated by new and expanded/relocated stores, the Christmas
and back-to-school periods together accounted for approximately 36% of the
Company's annual net sales and a higher percentage of the Company's operating
income. In fiscal 1996, excluding net sales generated by new and
expanded/relocated stores, approximately 43% of the Company's annual net sales
occurred in the first half of the fiscal year and 57% occurred in the second
half. The Company's quarterly results of operations may also fluctuate
significantly as a result of a variety of factors, including the timing of store
openings, the amount of revenue contributed by new stores, changes in the mix of
products sold, the timing and level of markdowns, the timing of store closings,
expansions and relocations, competitive factors and general economic conditions.

22
<PAGE> 24

The following table sets forth certain statement of operations and
operating data for each of the Company's last nine fiscal quarters and the
percentage of net sales represented by the line items presented (except in the
case of per share amounts and operating data). The quarterly statement of
operations data and selected operating data set forth below were derived from
unaudited financial statements of the Company, which in the opinion of
management of the Company contain all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation thereof. The results
for the first quarter of fiscal 1997 may not be indicative of the results to be
achieved for the entire fiscal year.

<TABLE>
<CAPTION>
FISCAL
FISCAL 1995 FISCAL 1996 1997
------------------------------------- ------------------------------------- -------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- ------- -------
(in thousands, except per share, percentage and selected operating data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... $19,477 $25,672 $31,368 $36,404 $27,641 $34,567 $43,247 $49,807 $38,933
Gross margin........................ 4,652 7,190 9,662 10,629 7,278 10,818 14,287 16,752 11,707
Selling, general and administrative
expenses.......................... 5,731 6,833 7,520 7,912 7,576 8,392 9,837 11,321 9,943
Operating income (loss)............. (1,079) 357 2,142 2,717 (298) 2,426 4,450 5,431 1,764
Net income (loss)................... (619) 218 1,323 1,701 (170) 1,485 2,739 3,357 1,124
Net income (loss) per share......... $ (0.08) $ 0.03 $ 0.17 $ 0.21 $ (0.02) $ 0.18 $ 0.33 $ 0.40 $ 0.13
Weighted average common and common
equivalent shares outstanding..... 7,732 7,971 7,975 8,045 7,892 8,286 8,342 8,395 8,443

AS A PERCENTAGE OF NET SALES:
Gross margin........................ 23.9% 28.0% 30.8% 29.2% 26.3% 31.3% 33.0% 33.6% 30.1%
Selling, general and administrative
expenses.......................... 29.4 26.6 24.0 21.7 27.4 24.3 22.7 22.7 25.5
Operating income (loss)............. (5.5) 1.4 6.8 7.5 (1.1) 7.0 10.3 10.9 4.6
Net income (loss)................... (3.2) 0.8 4.2 4.7 (0.6) 4.3 6.3 6.7 2.9

SELECTED OPERATING DATA:
Comparable store net sales increase
(decrease)........................ (9.6)% (6.7)% (1.0)% 4.6% 10.5% 7.4% 22.9% 18.9% 17.5%
Stores open at end of period........ 150 162 179 182 191 195 202 209 219
</TABLE>

23
<PAGE> 25

BUSINESS

The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in the forward-looking statements as a result
of certain factors, including those set forth under "Risk Factors" and elsewhere
in this Prospectus.

GENERAL

Pacific Sunwear is a leading mall-based specialty retailer of everyday
casual apparel, accessories and footwear designed to meet the lifestyle needs of
active teens and young adults. The Company's customers are primarily young men
aged 12 to 22, as well as young women of the same age who generally prefer a
casual look. The Company believes its stores are differentiated by a carefully
edited selection of popular and emerging brands, which are offered together with
the Company's own private brands. The Company believes its merchandise selection
enhances its image with its customers as a key fashion resource for the casual
teen wardrobe. At May 4, 1997, Pacific Sunwear operated 219 stores in 33 states
nationwide. The Company's stores are primarily concentrated in three regions:
the Northeast (26%), the Midwest (23%) and California (22%).

Based on the initial success of these merchandising initiatives, Pacific
Sunwear decided in late 1995 to increase its prototype store size from
approximately 2,000 to approximately 3,000 square feet. In fiscal 1996, the
Company opened 30 new stores, 26 of which were in the larger format, and in the
first thirteen weeks of fiscal 1997 opened 11 new stores, all of which were in
the larger format. The Company plans to open approximately 39 and 60 new larger
format stores during the remainder of fiscal 1997 and in fiscal 1998,
respectively. In fiscal 1996, the Company also began enlarging the size of
certain existing stores through expansion or relocation in order to accommodate
its new categories of juniors and footwear as well as its expanded assortment of
pants. In fiscal 1996 and the first thirteen weeks of fiscal 1997, the Company
expanded or relocated seven and two stores, respectively, and expects to expand
or relocate 10 to 13 and 10 to 15 of its existing stores during the remainder of
fiscal 1997 and in fiscal 1998, respectively, all of which are expected to
include juniors and footwear. The Company substantially completed its rollout of
juniors to its existing smaller stores by adding juniors to 39 of such stores in
the first thirteen weeks of fiscal 1997. At May 4, 1997, the Company carried
juniors in 182 of its stores, of which 77 also offered footwear. By the end of
fiscal 1997, the Company expects to carry juniors in approximately 233 of the
256 stores it expects to be open, of which approximately 143 will also offer
footwear.

THE TEEN MARKET

Pacific Sunwear's target customers are fashion conscious and seek a casual
apparel look which represents an active teen lifestyle. Based on the performance
of its stores in various regions of the country, the Company believes its
merchandise has a broad appeal that enables the Company to operate successfully
in diverse geographic markets. Pacific Sunwear is addressing the needs of a
sizable and growing market of approximately 40 million young men and women in
the United States in the 12 to 22 age group. The U.S. Department of Commerce
Bureau of the Census estimates that the

24
<PAGE> 26

Company's target age group will expand by approximately eight million young men
and women between 1996 and 2010, representing a projected growth rate
significantly greater than the growth rate of the overall population. In 1995,
according to published research data, the 12 to 19 year old segment of the
Company's target customers, which numbered approximately 29 million, spent an
average of approximately $3,700 each, representing an estimated $107 billion in
total purchasing power.

STRATEGY

Pacific Sunwear's goal is to be the dominant nationwide specialty retailer
of everyday casual apparel, footwear and accessories catering to the teen
market. The Company's target customers are young men and women in the 12 to 22
age group. Pacific Sunwear believes its customers want to stay abreast of
fashion trends and continually seek newness in their everyday wear. The Company
endeavors to satisfy such demands by offering a complete wardrobe selection,
including footwear and accessories, representing fashion trends considered
timely by the Company's target customers. The principal aspects of the Company's
strategy are as follows:

Offer a Broad Assortment. Pacific Sunwear offers a complete selection of
shirts, shorts, pants, overshirts, sweatshirts, outerwear, footwear and
accessories in order to satisfy the casual wardrobe needs of its teen customers.
Within each merchandise classification, the Company's stores offer a broad
selection, with the goal of being viewed by its customers as the dominant
retailer in its niche.

Create a Pacific Sunwear Brand Image. The Company strives to make the
"Pacific Sunwear" name synonymous with distinctive and high quality merchandise
for the casual teen lifestyle. The Company projects a strong brand image among
its customers by offering a carefully edited selection of popular and "cutting
edge" brands, together with the Company's own exclusive brands. Key brands in
young men's apparel offered by the Company include Billabong, JNCO, Quiksilver,
Rusty and Redsand. Key brands in juniors include Roxy (Quiksilver), Rusty, Hang
Ten, Generation X and JNCO, and in footwear include Dr. Martens, Airwalk, Etnies
and Vans. The development of Pacific Sunwear's brand image among its target
customers has been enhanced by the Company's own private brands, such as its
Bullhead and Breakdown labels. Pacific Sunwear believes that offering high
quality private brands contributes to its status as a key fashion resource for
the casual teen lifestyle and differentiates the Company from its competitors.

Actively Manage Merchandise Trends. Pacific Sunwear does not attempt to
dictate fashion, but instead devotes considerable effort to identifying emerging
fashion trends. By using focus groups, listening to its customers and store
employees, monitoring sell-through trends, testing small quantities of new
merchandise in a limited number of stores, and maintaining domestic and
international sourcing relationships, Pacific Sunwear enhances its ability to
identify and respond to emerging fashion trends and to develop new private brand
styles in order to capitalize on existing fashion trends. The Company believes
its proactive strategy helps minimize fashion risk and the potential need for
significant markdowns, while permitting a rapid response to changing fashions
and the timely rollout of new merchandise.

Maintain Strong Vendor Relationships. Pacific Sunwear views its vendor
relationships as important to its success, and promotes frequent personal
interaction with its vendors. The Company believes many of its vendors view
Pacific Sunwear as an important distribution channel, not only as one of their
largest customers, but also as an enhancement to the development of their own
brand image in the eyes of the teen customer.

Provide Attentive Customer Service. Pacific Sunwear is committed to
offering courteous, professional and nonintrusive customer service. The Company
strives to give its teen customers the same level of respect that is generally
given to adult customers at other retail stores, and to provide friendly and
informed customer service for parents. Responding to the expressed preferences
of its customers, the Company trains its employees to greet each customer, to
give prompt and courteous assistance when asked, and to thank customers after
purchases are made, but to refrain from giving extensive unsolicited advice to
its shoppers. Pacific Sunwear's stores are designed to give a sense of
"controlled

25
<PAGE> 27

clutter," with extensive wall displays and a background of popular music.
Additionally, the stores provide a friendly and social atmosphere for teens,
while also providing a comfortable environment for parents and other adults. The
Company believes the combination of its attentive customer service and its
unique store environment is integral to its success.

Growth Strategy. Pacific Sunwear intends to continue to grow through the
opening of new stores, the expansion or relocation of selected existing stores
and the continued rollout of shoes to certain of its smaller format stores.
During the remainder of fiscal 1997, the Company plans to open approximately 39
larger format stores and to expand or relocate 10 to 13 existing stores to the
larger store format and to add footwear to approximately 14 of its existing
smaller stores. In fiscal 1998, the Company plans to open approximately 60
larger format stores and to expand or relocate 10 to 15 existing stores to the
larger store format. The Company believes that the broad appeal of the Pacific
Sunwear concept enables it to operate successfully in diverse geographic
markets.

MERCHANDISING

Merchandise

Pacific Sunwear offers a complete selection of shirts, shorts, pants,
overshirts, sweatshirts, outerwear, footwear and accessories in order to satisfy
the casual wardrobe needs of its teen customers. Within each merchandise
classification, the Company's stores offer a broad selection, with the goal of
being viewed by its customers as the dominant retailer in its niche. Based on
the Company's historical focus, a substantial portion of its merchandise is
targeted to a young male customer, although Pacific Sunwear's customers have
always included young female customers who choose to purchase young men's
apparel to wear themselves.

Since mid-1995, Pacific Sunwear has implemented several strategic
merchandising initiatives which it believes have enhanced its ability to serve
the fashion needs of its customers. The Company significantly expanded its pant
assortment for young men chainwide in order to address the apparel needs of its
customers in general and the needs of customers in colder climate regions such
as the Northeast and Midwest in particular. In addition, the Company introduced
the categories of juniors and footwear on a test basis in a limited number of
stores beginning in the summer of 1995. The Company introduced juniors in an
effort to broaden its customer base, as well as to provide its existing female
customers with a wider array of apparel choices. Pacific Sunwear's junior
merchandise includes shirts, shorts, pants, sweatshirts, outerwear and
accessories. Footwear was introduced in response to customer demand and allowed
the Company to provide its customers with a complete wardrobe for the casual
teen lifestyle. The Company's footwear assortment includes non-athletic
sneakers, shoes, boots and sandals, with approximately 80 to 100 styles
currently being offered. The Company's goal with regard to its footwear
selection is to offer a carefully edited assortment of the most popular styles
within its everyday casual niche. At May 4, 1997, the Company carried juniors in
182 of its stores, of which 77 also offered footwear, and at the end of fiscal
1997 expects to carry juniors in approximately 233 of the 256 stores it expects
to be open, of which approximately 143 are expected to offer footwear.

Pacific Sunwear does not attempt to dictate fashion, but instead devotes
considerable effort to identifying emerging fashion trends. By using focus
groups, listening to its customers and store employees, monitoring sell-through
trends, testing small quantities of new merchandise in a limited number of
stores, and maintaining domestic and international sourcing relationships,
Pacific Sunwear enhances its ability to identify and respond to emerging fashion
trends and to develop new private brand styles in order to capitalize on
existing fashion trends. The Company believes its proactive strategy helps
minimize fashion risk and the potential need for significant markdowns, while
permitting a rapid response to changing fashions and the timely rollout of new
merchandise.

26
<PAGE> 28

The following table sets forth the Company's merchandise assortment by
classification as a percentage of net sales for the periods shown:

<TABLE>
<CAPTION>
THIRTEEN
FISCAL YEAR ENDED WEEKS ENDED
---------------------------- -----------------
JAN. 29, FEB. 4, FEB. 2, MAY 5, MAY 4,
1995 1996 1997 1996 1997
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
T-shirts, knit and woven tops............... 46% 44% 34% 41% 33%
Pants....................................... 5 10 17 12 17
Accessories (hats, sunglasses and other).... 17 16 13 14 10
Bermuda shorts, other shorts and swimwear... 16 14 12 23 18
Overshirts, sweatshirts and outerwear....... 16 15 12 4 3
Juniors..................................... -- * 8 4 12
Footwear.................................... * 1 4 2 7
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
</TABLE>

- ---------------

* Less than one percent.

Pacific Sunwear offers many of the brands best known by its target
customers, as well as other "cutting edge" brands that reflect fashion trends
considered timely by the Company's customers. Key brands in young men's apparel
include Billabong, JNCO, Quiksilver, Rusty, Redsand, Fresh Jive, Stussy, HIC
(Hawaiian Island Creations) and 26 Red. In the Company's new juniors category,
many of the brands offered are new lines developed by the Company's existing
young men's vendors, such as Roxy (Quiksilver), Rusty, Stussy and 26 Red. The
Company believes these lines were developed in recognition of a trend towards
more fitted and feminine styles for young women. In addition, the Company's
junior merchandise includes vendors new to Pacific Sunwear, such as Free People
and Generation X. Pacific Sunwear believes that offering merchandise designed
specifically for young women broadens its customer base. The Company's footwear
brands include Dr. Martens, Airwalk, Etnies, Vans, Simple and Teva. In fiscal
1996, fiscal 1995 and fiscal 1994, approximately 62%, 65% and 77%, respectively,
of Pacific Sunwear's net sales consisted of brand name merchandise. In the first
thirteen weeks of fiscal 1997 and fiscal 1996, approximately 65%, and 61%,
respectively, of Pacific Sunwear's net sales consisted of brand name
merchandise. Billabong accounted for approximately 11% and 10% of the Company's
net sales in the first thirteen weeks of fiscal 1997 and the first thirteen
weeks of fiscal 1996, respectively. No other vendor accounted for more than 10%
of net sales in either period.

Pacific Sunwear also offers a wide selection of private brand merchandise
under the labels "Bullhead," "Breakdown," "Diversion," "Island Force," "Hoax"
and "Rare Brew," each of which is targeted at a specific customer segment.
Pacific Sunwear believes that offering high quality private brands contributes
to its status as a key fashion resource for the casual teen lifestyle and
differentiates the Company from its competitors. First introduced in the late
1980s, the Company's most established private brands are those designed for its
young male customers. Beginning in late 1995, Pacific Sunwear introduced private
brand merchandise designed for juniors, corresponding by label and brand
positioning to the young men's lines. In addition, the Company has introduced
new private brand labels targeted specifically to the junior customer. The
Company believes that the development of its brand image among its target
customers is enhanced by its private brands. In addition, the private brand
labels provide an opportunity to broaden its customer base by providing
merchandise of comparable quality to brand name merchandise at lower prices,
capitalize on emerging fashion trends when branded merchandise is not available
in sufficient quantities and provide the Company with a greater degree of
control over the flow of its merchandise. The Company's private brand label
merchandise is designed internally by a nine-person product development staff in
collaboration with the Company's buying staff. The product development staff
also oversees the manufacture and delivery of the private brand merchandise,
with manufacturing done on a contract basis domestically and in

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<PAGE> 29

Asia and Mexico. Private brand sales accounted for 38%, 35% and 23% of the
Company's net sales for fiscal 1996, fiscal 1995 and fiscal 1994, respectively.
In the first thirteen weeks of fiscal 1997 and in the first thirteen weeks of
fiscal 1996, approximately 35% and 39%, respectively, of Pacific Sunwear's net
sales consisted of private brand merchandise.

Vendor and Contract Manufacturer Relationships

Pacific Sunwear views its vendor relationships as important to its success,
and promotes frequent personal interaction with its vendors. The Company
believes many of its vendors view Pacific Sunwear as an important distribution
channel, not only as one of their largest customers, but also as an enhancement
to the development of their own brand image in the eyes of the teen customer.
The Company's vendor base currently includes more than 120 vendors. The Company
maintains strong and interactive relationships with its vendors, many of whose
philosophies of controlled distribution and merchandise development are
consistent with the Company's strategy. Pacific Sunwear generally purchases
merchandise from vendors who prefer distributing through specialty retailers,
small boutiques and, in some cases, better department stores, rather than
distributing their merchandise through mass market channels.

To encourage the design and development of new merchandise, Pacific Sunwear
frequently shares ideas regarding fashion trends and merchandise sell-through
information with its vendors. Pacific Sunwear also discusses merchandise design
and fabrication with certain vendors. The Company encourages the development of
new vendor relationships by attending trade shows and through its weekly
"Open-house Wednesday" program during which new vendors are encouraged to make
presentations of their merchandise to the Company's buying and product
development staffs. A number of the Company's key vendors have been introduced
to the Company through this program.

The Company's business is dependent upon its ability to offer current
season, brand name apparel at competitive prices and in adequate quantities.
Most of the Company's vendors have limited resources, production capacities and
operating histories and many have intentionally limited the distribution of
their merchandise. The inability or unwillingness of key vendors to expand their
sales to the Company to keep pace with Pacific Sunwear's anticipated growth, or
the loss of one or more key vendors for any reason, could have a material
adverse effect on the Company's business.

Pacific Sunwear has cultivated its private brand sources with a view
towards high quality merchandise, production reliability and consistency of fit.
The Company sources its private brand merchandise both domestically and
internationally in order to benefit from the lower costs associated with foreign
manufacturing and the shorter lead times associated with domestic manufacturing.

Purchasing, Allocation and Distribution

The Company's merchandising department oversees the purchasing and
allocation of the Company's merchandise. The Company's buyers are responsible
for reviewing branded merchandise lines from new and existing vendors, selecting
branded and private brand merchandise styles in quantities, colors and sizes to
meet inventory levels established by management, and identifying emerging
fashion trends. The Company's planning and allocation department is responsible
for management of inventory levels by store and by class, allocation of
merchandise to stores and inventory replenishment based upon information
generated by the Company's merchandise management information systems. These
systems provide the planning department with current inventory levels at each
store and for the Company as a whole, as well as current selling history within
each store by merchandise classification and by style. See "-- Information
Systems."

The Company's corporate offices and distribution center are located in
Anaheim, California. The Company believes its distribution center is capable of
servicing 300 stores. Based on the Company's current expansion plans, the
Company intends to relocate its corporate offices and distribution center in
1998 in close proximity to the current location of such facilities. All
merchandise is delivered by its vendors to the main facility, where it is
inspected, received into the Company's computer system,

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<PAGE> 30

allocated to stores, ticketed when necessary, and boxed for distribution to the
Company's stores. Each Pacific Sunwear store is typically shipped merchandise
three to five times a week, providing it with a steady flow of new merchandise.
The Company uses national and regional small package carriers to ship
merchandise to its stores and occasionally uses air freight during peak selling
periods.

STORES

Locations and Store Environment

Pacific Sunwear has expanded from 11 stores in California at the end of
fiscal 1986 to 219 stores in 33 states at May 4, 1997. The Company's stores are
primarily concentrated in three regions: the Northeast (26%), the Midwest (23%)
and California (22%). The map below identifies the number of stores located in
each state:

[MAP OF UNITED STATES IDENTIFYING NUMBER OF STORES LOCATED IN EACH STATE]

Pacific Sunwear stores are located in regional shopping malls and through
fiscal 1995 averaged approximately 2,000 square feet. In late 1995, based on the
initial success of juniors and footwear, the Company increased its prototype
store size to approximately 3,000 square feet. Thirty-seven of the 41 stores
opened since the beginning of fiscal 1996 were opened in the new larger format.
The Company has also expanded the size of nine existing stores to the larger
format since the beginning of fiscal 1996 in order to accommodate its new
juniors and footwear categories as well as its expanded assortment of pants,
bringing the current total number of stores in the larger format to 46 at May 4,
1997.

Pacific Sunwear stores are densely merchandised by classification, and are
designed to give a sense of "controlled clutter," with extensive wall displays
and a background of popular music. The stores use eye-catching graphics to
promote both brand name and private brand merchandise designed to appeal to
customers in the 12 to 22 age group. The store window displays are changed every
week and feature the latest fashions. The Company strives to give its teen
customers the same level of respect that is generally given to adult customers
at other retail stores, and to provide friendly and informed customer service
for parents. Responding to the expressed preferences of its customers, the
Company trains its employees to greet each customer, to give prompt and
courteous assistance when asked, and to thank customers after purchases are
made, but to refrain from giving extensive unsolicited advice to its shoppers.
Additionally, the stores provide a friendly and social atmosphere for teens,
while also providing a comfortable environment for parents and other adults. The
Company believes the combination of its attentive customer service and its
unique store environment is integral to its success.

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<PAGE> 31

Expansion

The Company plans to increase its current store base by opening
approximately 39 stores during the remainder of fiscal 1997 and approximately 60
stores in fiscal 1998, all of which are expected to be in the larger store
format. The Company also intends to expand or relocate 10 to 13 and 10 to 15
stores to the larger store format during the remainder of fiscal 1997 and in
fiscal 1998, respectively. The Company has identified regional malls in major
metropolitan areas for potential new store expansion, subject to financial
return and site selection criteria. In addition, the Company may open one or two
stores in non-mall street locations in metropolitan areas in fiscal 1997. The
Company opened one outlet store in fiscal 1996 in a value-oriented enclosed
shopping center in a southern California metropolitan area. Based on the initial
performance of its first outlet store, the Company opened one additional outlet
store in late May 1997 and intends to open two more outlet stores in fiscal
1997. In fiscal 1996 and in the first thirteen weeks of fiscal 1997, the Company
opened an aggregate of 41 new stores in the following states: California (1),
Colorado (1), Delaware (1), Florida (4), Georgia (1), Illinois (1), Indiana (2),
Maryland (1), Massachusetts (3), Michigan (2), Minnesota (1), Nevada (1), New
Jersey (1), New York (2), North Carolina (1), Ohio (8), Pennsylvania (7),
Tennessee (1), Texas (1) and Wisconsin (1). Substantially all of the stores the
Company expects to open during the remainder of fiscal 1997 will be opened in
regions in which it currently operates.

The Company's site selection strategy is to locate its stores in regional
malls serving markets which meet its demographic criteria, including average
household income and population density. The Company also considers mall sales
per square foot, the performance of other retail tenants serving teens and young
adult customers, anchor tenants and occupancy costs. The Company currently seeks
store locations of approximately 3,000 square feet primarily in high traffic
locations within a mall. As a result of the increased average store size opened
in fiscal 1996, the Company's average total cost per store, including leasehold
improvements, furniture and fixtures and landlord allowances, increased to
approximately $193,000 from approximately $156,500 in fiscal 1995. In fiscal
1996, the average cost of expanding or relocating a store was approximately
$239,000. The average total cost to build new stores will vary in the future,
depending on various factors, including changes in store size and design, local
construction costs and landlord allowances. The Company's average initial
inventory for new stores opened in fiscal 1996 was approximately $130,000. In
the first thirteen weeks of fiscal 1997 and in the first thirteen weeks of
fiscal 1996, the Company's average initial inventory for new stores was
approximately $115,000 and $122,000, respectively.

The Company's continued growth depends on its ability to open and operate
stores on a profitable basis. The Company's ability to expand successfully will
be dependent upon a number of factors, including sufficient demand for the
Company's merchandise in its existing and new markets, and the ability of the
Company to locate and obtain favorable store sites, negotiate acceptable lease
terms, obtain adequate merchandise supply and hire and train qualified
management level and other employees.

Store Operations

Store operations are managed by a Vice President of Stores, three regional
managers and 24 district managers, each of whom typically manages from 8 to 10
stores. These managers and individual store managers participate in a bonus
program based on achieving predetermined levels of sales and, in the case of the
district managers, inventory shrinkage. Each store also has a co-manager, an
assistant manager and approximately 4 to 10 sales associates. Pacific Sunwear
stores are open during mall shopping hours. The Company has well-established
store operating policies and procedures and an extensive four week in-store
training program for new store managers and co-managers. The Company places
great emphasis on its loss prevention program in order to control inventory
shrinkage. This program includes the installation of electronic article
surveillance systems in all stores, education of store personnel on loss
prevention, and monitoring of returns, voids and employee sales. Since fiscal
1991, the Company has achieved an inventory shrinkage rate of less than 1.0% of
net sales in each fiscal year, which the Company believes is among the lowest
shrinkage rates among national specialty apparel retailers.

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<PAGE> 32

INFORMATION SYSTEMS

Pacific Sunwear's merchandise, financial and store computer systems are
fully integrated and operate using IBM equipment. The systems have been in
operation since 1986, and the software, which is primarily provided by one of
the largest vendors to the retail trade, is regularly upgraded and modified as
needs arise or change. Pacific Sunwear's information systems provide management,
buyers, and planners comprehensive data which helps them identify emerging
trends and manage inventories. The systems include purchase order management,
open order reporting, open-to-buy, receiving, distribution, merchandise
allocation, basic stock replenishment, inter-store transfers, inventory and
price management. Weekly best/worst item sales reports are used by management to
enhance the timeliness and effectiveness of purchasing and markdown decisions.
Merchandise purchases are based on planned sales and inventories and are
frequently revised to reflect changes in demand for a particular item or
classification.

All of the Company's stores have a point-of-sale system operating on IBM
in-store computer hardware. The system features bar-coded ticket scanning,
automatic price look-up, dial-out check and credit authorization, and automatic
nightly transmittal of data between the store and the Company's corporate
offices. Each of the regional and district managers use a laptop computer and
can instantly access Company-wide information, including actual and budgeted
sales by store, district and region, transaction information and payroll data.
The Company believes its management information systems are adequate to support
its planned expansion at least through fiscal 1998.

COMPETITION

The retail apparel, footwear and accessory business is highly competitive.
The Company competes on a national level with certain leading department stores
and national chains which offer the same or similar brands and styles of
merchandise. Pacific Sunwear also competes with a wide variety of regional and
local specialty stores. Many of the Company's competitors are larger and have
significantly greater resources than the Company. The Company believes the
principal competitive factors in its industry are fashion, merchandise
assortment, quality, price, store location and environment, and customer
service.

TRADEMARKS AND SERVICE MARKS

Pacific Sunwear is the owner in the United States of the federally
registered service mark "Pacific Sunwear of California" and the federally
registered trademarks "Bullhead," "Breakdown," "Diversion," "Island Force,"
"Hoax" and "Rare Brew." The Company has applied to register "Pacific Sunwear of
California," "Pacific Sunwear," "Betty's Space" and "Tilt" as federally
registered trademarks. The Company believes its rights in these marks are
important to its business. The Company intends to maintain its marks and the
related registrations.

EMPLOYEES

At May 4, 1997, Pacific Sunwear had approximately 2,111 employees of whom
74 were employed in general and administrative functions at the Company's
corporate headquarters, 31 were employed in distribution center functions, 27
were employed as regional or district managers and approximately 1,979 were
store employees, of whom approximately 1,300 were part-time. A significant
number of seasonal employees are hired during peak selling periods. None of the
Company's employees is represented by a labor union, and the Company believes
that its relationships with its employees are good.

PROPERTIES

The Company's corporate offices and distribution facility occupy an
aggregate of approximately 65,000 square feet in Anaheim, California under a
lease expiring in December 2003. The Company has the right to terminate the
lease agreement as of December 1998 for a termination fee of $90,000. Based

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<PAGE> 33

on the Company's current expansion plans, the Company intends to relocate its
corporate offices and distribution center in 1998 in close proximity to the
current location of such facilities. In the event that the Company vacates its
current facility prior to December 31, 1998, and the facility is not leased to a
new tenant, the Company would also be required to make the balance of the lease
payments due through December 31, 1998.

All of the Company's stores are leased with initial lease terms ranging
from approximately 8 to 10 years. Substantially all leases for the Company's
stores provide for percentage rent, in excess of specified minimums, based upon
net sales.

LITIGATION

The Company is involved from time to time in litigation incidental to its
business. Management believes that the outcome of current litigation will not
have a material adverse effect upon the operations or financial condition of the
Company.

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<PAGE> 34

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The Company's executive officers and directors are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- -------------------------------------------------
<S> <C> <C>
Julius Jensen III(1)(2).... 64 Chairman of the Board
Greg H. Weaver............. 43 President and Chief Executive Officer, Director
Timothy M. Harmon.......... 45 Executive Vice President of Merchandising
Carl W. Womack............. 46 Senior Vice President, Chief Financial Officer
and Secretary
Ronald L. Ehlers........... 45 Vice President of Information Systems
Robert G. Entersz.......... 51 Vice President of Merchandising, Juniors and
Footwear
Larry J. Fesler............ 46 Vice President of Stores
Gary C.W. Hunt............. 46 Vice President of Product Development
Robert M. Sayre............ 42 Vice President of Merchandising, Young Men's and
Accessories
Shelley Smith.............. 38 Vice President of Real Estate
Pearson C. Cummin III(2)... 54 Director
Peter L. Harris(2)......... 53 Director
James B. McCurry(1)........ 48 Director
</TABLE>

- ---------------

(1) Member of Audit Committee.

(2) Member of Compensation Committee.

Julius Jensen III has served as Chairman of the Board since February 1996,
and has been a director of the Company since 1988. Mr. Jensen has been a general
partner of Copley Venture Partners, a venture capital investment firm, since
1985. He presently serves as a director of Mulberry Child Care Centers and
Natural Wonders, Inc.

Greg H. Weaver has served as President and Chief Executive Officer since
October 1996, and as a director since February 1996. Mr. Weaver served as
President and Chief Operating Officer from February 1996 to October 1996 and as
Chief Operating Officer and Executive Vice President from October 1994 to
February 1996. Mr. Weaver also served as Senior Vice President and Vice
President since he joined the Company in July 1987.

Timothy M. Harmon, who joined the Company in September 1991, has served as
Executive Vice President of Merchandising since December 1996. He served as
Senior Vice President of Merchandising from October 1994 to November 1996. He
served as Vice President of Merchandising from September 1991 to September 1994.
Prior to joining the Company, he served as Vice President and General Manager of
Wideworld/MTV Sportswear, a domestic apparel manufacturer, from May 1990 until
May 1991. From March 1986 until March 1990, Mr. Harmon served as Vice President
and General Manager, Women's Division, of Chauvin International, an apparel
manufacturer. Prior to that, he served as Divisional Merchandise Manager for
Miller's Outpost, a young men's apparel retailer, where he was employed for six
years.

Carl W. Womack, who joined the Company in May 1986, has served as Senior
Vice President and Chief Financial Officer since October 1994. He served as Vice
President of Finance and Chief Financial Officer from May 1986 to September
1994. He has served as Secretary of the Company since November 1992. Prior to
joining the Company, Mr. Womack served in several positions in public and
private accounting. Mr. Womack is a certified public accountant.

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<PAGE> 35

Ronald L. Ehlers joined the Company in June 1994 as Vice President of
Information Systems. Previously, he was Director of Management Information
Systems for Woman's World Shops, Inc., a women's specialty apparel retailer,
where he was employed for 16 years.

Robert G. Entersz joined the Company in November 1995 as Vice President of
Merchandising, Juniors and Footwear. Prior to joining the Company, he was
President of Journey's, a specialty shoe retailer, from May 1993 to February
1995. Previously he was Executive Vice President at Broadway Southwest, a
department store, from January 1991 to April 1993. Prior to that, he was Senior
Vice President and General Merchandise Manager at Rich's, a division of
Federated Department Stores.

Larry J. Fesler has served as Vice President of Stores since joining the
Company in August 1993. Previously, he served for 11 years as Regional Sales
Manager with The Limited for its southwest store operations, where he was
employed for 15 years.

Gary C.W. Hunt joined the Company as Vice President of Product Development
in October 1993. Prior to joining the Company, he served as Vice President of
Merchandising with Pepe Clothing (USA), a jeanswear collection company, from
November 1990 to September 1993 and as Vice President of Merchandising with
Filippo Enterprises, Inc., a national jeanswear manufacturer, from September
1988 to August 1990. Previously, he served as Vice President of Merchandising
for Jordache and for Zena Enterprises, Inc., each of which is a jeanswear
manufacturer.

Robert M. Sayre joined the Company in February 1997 as Vice President of
Merchandising, Young Men's and Accessories. Prior to joining the Company, he was
General Merchandising Manager at J. Rigging's, a division of Edison Brothers
Stores, Inc., where he was employed from March 1991 to December 1996.
Previously, he was Vice President of Menswear at Harold's & Old School Clothing
Company, a regional apparel retailer, from May 1990 to October 1990. Prior to
that, he was employed at Britches of Georgetown, a regional apparel retailer,
from May 1979 to April 1990.

Shelley Smith joined the Company in October 1994 as Vice President of Real
Estate. Previously, she was Director of Real Estate for Gymboree Corporation, a
children's apparel retailer, from October 1993 to September 1994. From March
1989 to September 1993, she served as Director of Real Estate for Natural
Wonders, Inc., a nature and science gift retailer. Prior to that, she was a Real
Estate Representative for WNS, Inc., a specialty retailer with several chains,
where she was employed from August 1985 to February 1989.

Pearson C. Cummin III has served as a director of the Company since 1988.
Mr. Cummin has been a general partner of Consumer Venture Partners, a venture
capital investment firm, since January 1986. He serves as a director of Natural
Wonders, Inc. and The Boston Beer Company.

Peter L. Harris has served as a director of the Company since 1994. Mr.
Harris has served as Chairman, Chief Executive Officer and President of
Expressly Portraits, a family portrait studio chain, since August 1995.
Previously, he was Chairman of Accolade, Inc., a publisher of interactive
entertainment software, from May 1994 to January 1996, and Chief Executive
Officer of Accolade, Inc. from May 1994 to June 1995. Prior to that, Mr. Harris
was President and Chief Executive Officer of F.A.O. Schwarz from 1985 to 1992,
and President of Gemco Department Stores from 1980 to 1984. Mr. Harris serves as
a director of Natural Wonders, Inc., Boomtown, Inc. and ONSALE, Inc.

James B. McCurry has served as a director of the Company since 1994. Mr.
McCurry has been a business consultant since December 1996. Previously, he
served as a Chairman of the Board and Chief Executive Officer of NeoStar Retail
Group, Inc. ("NeoStar"), a specialty retailer of consumer software, from
December 1994 to December 1996. He served as Chairman of the Board of Babbage's,
Inc. from its incorporation in 1983 until its merger with Software Etc. to form
NeoStar. NeoStar filed a voluntary petition under Chapter 11 of the U.S. Federal
Bankruptcy Code in September 1996. Mr. McCurry serves as a director of American
General Hospitality Corporation.

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<PAGE> 36

UNDERWRITING

The Underwriters named below (the "Underwriters") have severally agreed
with the Company, subject to the terms and conditions of the Underwriting
Agreement, to purchase from the Company the number of shares of Common Stock set
forth opposite their respective names below. The Underwriters are committed to
purchase and pay for all such shares if any are purchased.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
--------------------------------------------------------------------------- ---------
<S> <C>
Robertson, Stephens & Company LLC..........................................
Alex. Brown & Sons Incorporated............................................
The Robinson-Humphrey Company, Inc. .......................................
-------
Total............................................................ 700,000
=======
</TABLE>

The Underwriters have advised the Company that the Underwriters propose to
offer the shares of Common Stock to the public at the public offering price set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession not in excess of $ per share, of which $ may be reallowed
to other dealers. After the public offering, the public offering price,
concession and reallowance to dealers may be reduced by the Underwriters. No
such reduction shall change the amount of proceeds to be received by the Company
as set forth on the cover page of this Prospectus.

The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 105,000
additional shares of Common Stock at the same price per share as the Company
will receive for the 700,000 shares that the Underwriters have agreed to
purchase. To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of Common Stock
to be purchased by it shown in the above table represents as a percentage of the
700,000 shares offered hereby. If purchased, such additional shares will be sold
by the Underwriters on the same terms as those on which the 700,000 shares are
being sold.

The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liability arising from breaches of
representations and warranties contained in the Underwriting Agreement.

Subject to the exception described below, each officer and director who
holds shares of the Company has agreed with the Underwriters, for a period of 90
days from the date of this Prospectus (the "Lock-Up Period"), not to offer to
sell, contract to sell, or otherwise sell, dispose of, loan, pledge, or grant
any rights with respect to any shares of Common Stock, any options or warrants
to purchase any shares of Common Stock, or any securities convertible into or
exchangeable for shares of Common Stock owned as of the date of this Prospectus
or thereafter acquired directly by such holders or with respect to which they
have or hereafter acquire the power of disposition, without the prior written
consent of Robertson, Stephens & Company LLC which may, in its sole discretion
and at any time or from time to time, without notice, release all or any portion
of the shares subject to lock-up agreements. Excepted from the foregoing lock-up
agreement is an aggregate of 50,000 shares (of the aggregate of 394,979 shares
owned by the officers and directors as a group, including 190,160 shares
underlying currently exercisable stock options held by such individuals). In
addition, the Company has agreed that during the Lock-Up Period, the Company
will not, without the prior written consent of Robertson, Stephens & Company
LLC, issue, sell, contract to sell, or otherwise dispose of, any shares of
Common Stock, any options or warrants to purchase any shares of Common Stock or
any securities convertible into, exercisable for or exchangeable for shares of
Common Stock other than the Company's sale of shares in this offering, the
issuance of Common Stock upon the exercise of outstanding options, and the
Company's issuance of options and shares under existing employee stock option
and stock purchase plans.

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<PAGE> 37

The offering price for the Common Stock will be determined by negotiations
between the Company and the Underwriters, based largely upon the market price
for the Common Stock as reported on the Nasdaq National Market.

In connection with this offering, certain Underwriters and selling group
members (if any) who are qualified market makers on the Nasdaq National Market
may engage in passive market making transactions in the Common Stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Exchange Act during the business day prior to the pricing of the offering before
the commencement of offers or sales of the Common Stock. Passive market makers
must comply with applicable volume and price limitations and must be identified
as such. In general, a passive market maker must display its bid at a price not
in excess of the highest independent bid for such security; if all independent
bids are lowered below the passive market maker's bid, however, such bid must
then be lowered when certain purchase limits are exceeded.

Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids or effecting syndicate covering
transactions. A stabilizing bid means the placing of any bid or effecting of any
purchase, for the purpose of pegging, fixing or maintaining the price of the
Common Stock. A syndicate covering transaction means the placing of any bid on
behalf of the underwriting syndicate or the effecting of any purchase to reduce
a short position created in connection with the offering. Such transactions may
be effected on the Nasdaq National Market, in the over-the-counter market, or
otherwise. Such stabilizing, if commenced, may be discontinued at any time.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by O'Melveny & Myers LLP. A partner of such firm owns 6,000 shares of
Common Stock of the Company. Certain matters will be passed upon for the
Underwriters by Orrick, Herrington & Sutcliffe LLP.

EXPERTS

The financial statements as of February 2, 1997 and February 4, 1996 and
for each of the three fiscal years in the period ended February 2, 1997 included
in this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.

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<PAGE> 38

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549 and at the following regional offices of the Commission: Northwest
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. The Commission also maintains a site on the World Wide Web that contains
reports, proxy and information statements and other information regarding the
Company. The address for such site is http://www.sec.gov. Such information with
respect to the Company may also be inspected at the offices of the National
Association of Securities Dealers, Reports Section, 1735 K Street, N.W.,
Washington, D.C. 20006.

The Company has filed with the Commission a Registration Statement on Form
S-3 (which together with all amendments, exhibits and schedules thereto, is
referred to as the "Registration Statement") under the Securities Act with
respect to the shares of Common Stock offered hereby. This Prospectus does not
include all of the information set forth in the Registration Statement filed by
the Company with the Commission under the Securities Act, as permitted by the
rules and regulations of the Commission. The Registration Statement, including
any amendments, schedules and exhibits filed or incorporated by reference as a
part thereof, is available for inspection and copying as set forth above.
Statements contained in this Prospectus or in any document incorporated herein
by reference as to the contents of any contract or other document referred to
herein or therein are not necessarily complete and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement or such other document, and each statement shall be
deemed qualified in its entirety by such reference.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company's (i) Annual Report on Form 10-K for the fiscal year ended
February 2, 1997, (ii) Quarterly Report on Form 10-Q for the quarter ended May
4, 1997, and (iii) the Company's description of its Common Stock appearing in
the Company's Registration Statement on Form 8-A dated February 24, 1993, each
as filed with the Commission under the Exchange Act, are incorporated into this
Prospectus by reference.

All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and before the termination of this offering shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes hereof to the extent that a statement contained herein
(or in any other subsequently filed document that is or is deemed to be
incorporated by reference herein) modifies or supersedes such previous
statement. Any statement so modified or superseded shall not be deemed to
constitute a part hereof except as so modified or superseded.

This Prospectus incorporates documents by reference that are not presented
herein or delivered herewith. These documents (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference into
such document) are available without charge, upon written or oral request by any
person to whom this Prospectus has been delivered. Requests for such copies
should be directed to Carl Womack, Senior Vice President, Chief Financial
Officer, Secretary, Pacific Sunwear of California, Inc., 5037 East Hunter
Avenue, Anaheim, California 92807 (telephone: (714) 693-8066).

37
<PAGE> 39

PACIFIC SUNWEAR OF CALIFORNIA, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
YEARS ENDED FEBRUARY 2, 1997, FEBRUARY 4, 1996 AND JANUARY 29, 1995:
Independent auditors' report.................................................... F-2
Balance sheets as of February 2, 1997 and February 4, 1996...................... F-3
Statements of operations for each of the three fiscal years in the period ended
February 2, 1997............................................................... F-4
Statements of shareholders' equity for each of the three fiscal years in the
period ended February 2, 1997.................................................. F-5
Statements of cash flows for each of the three fiscal years in the period ended
February 2, 1997............................................................... F-6
Notes to financial statements................................................... F-7

THIRTEEN WEEKS ENDED MAY 4, 1997 AND MAY 5, 1996:
Condensed balance sheet (unaudited) as of May 4, 1997........................... F-14
Condensed statements of operations (unaudited) for the thirteen weeks ended May
4, 1997 and May 5, 1996........................................................ F-15
Condensed statements of cash flows (unaudited) for the thirteen weeks ended May
4, 1997 and May 5, 1996........................................................ F-16
Notes to condensed financial statements......................................... F-17
</TABLE>

F-1
<PAGE> 40

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Pacific Sunwear of California, Inc.
Anaheim, California

We have audited the accompanying balance sheets of Pacific Sunwear of
California, Inc. as of February 2, 1997 and February 4, 1996, and the related
statements of operations, shareholders' equity and cash flows for each of the
three fiscal years in the period ended February 2, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Pacific Sunwear of California, Inc. as of
February 2, 1997 and February 4, 1996 and the results of its operations and its
cash flows for each of the three fiscal years in the period ended February 2,
1997 in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Costa Mesa, California
March 11, 1997

F-2
<PAGE> 41

PACIFIC SUNWEAR OF CALIFORNIA, INC.

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
FEBRUARY 2, FEBRUARY 4,
1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 1)............................ $ 9,962,626 $ 4,315,842
Accounts receivable........................................... 583,811 323,299
Merchandise inventories....................................... 19,760,412 15,408,844
Prepaid expenses, includes $1,910,681 and $1,575,311 of
prepaid rent, respectively................................. 3,216,160 2,451,170
Deferred taxes (Note 4)....................................... 1,358,733 1,160,179
------------ ------------
Total current assets....................................... 34,881,742 23,659,334
PROPERTY AND EQUIPMENT:
Leasehold improvements........................................ 25,210,439 22,044,879
Furniture, fixtures and equipment............................. 20,244,954 16,667,276
------------ ------------
45,455,393 38,712,155
Less accumulated depreciation and amortization................ (15,952,174) (12,088,943)
------------ ------------
Net property and equipment................................. 29,503,219 26,623,212
OTHER ASSETS:
Goodwill, net of accumulated amortization of $292,165 and
$265,283, respectively..................................... 796,578 823,460
Deposits and other assets..................................... 523,018 364,739
------------ ------------
Total other assets......................................... 1,319,596 1,188,199
------------ ------------
Total assets.......................................... $ 65,704,557 $ 51,470,745
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.............................................. $ 6,686,561 $ 5,268,496
Accrued liabilities (Note 7).................................. 6,035,689 2,747,414
Current portion of long-term debt (Note 2).................... -- 375,000
Income taxes payable.......................................... 469,258 468,661
------------ ------------
Total current liabilities............................. 13,191,508 8,859,571
LONG-TERM DEBT (Note 2)......................................... -- 406,250
DEFERRED COMPENSATION (Note 6).................................. 371,057 185,348
DEFERRED RENT................................................... 3,139,487 2,724,381
DEFERRED TAXES (Note 4)......................................... 1,456,463 985,808
COMMITMENTS AND CONTINGENCIES (Note 5)..........................
SHAREHOLDERS' EQUITY (Notes 3 and 6):
Preferred Stock, par value $.01; authorized, 5,000,000 shares;
none issued and outstanding................................
Common Stock, par value $.01; authorized 22,500,000 shares;
issued and outstanding, 8,092,107 and 7,950,257 shares,
respectively............................................... 80,921 79,503
Additional paid-in capital.................................... 30,737,782 28,914,368
Retained earnings............................................. 16,727,339 9,315,516
------------ ------------
Total shareholders' equity............................... 47,546,042 38,309,387
------------ ------------
Total liabilities and shareholders' equity............ $ 65,704,557 $ 51,470,745
============ ============
</TABLE>

See notes to financial statements.

F-3
<PAGE> 42

PACIFIC SUNWEAR OF CALIFORNIA, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------
FEBRUARY 2, FEBRUARY 4, JANUARY 29,
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Net sales......................................... $155,261,558 $112,921,005 $85,316,229
Cost of goods sold (including buying, distribution
and occupancy costs)............................ 106,126,306 80,787,679 59,481,279
------------ ------------ -----------
Gross margin...................................... 49,135,252 32,133,326 25,834,950
Selling, general and administrative expenses...... 37,126,318 27,996,316 20,032,410
------------ ------------ -----------
Operating income.................................. 12,008,934 4,137,010 5,802,540
Interest income, net.............................. 236,889 62,681 307,076
------------ ------------ -----------
Income before income tax expense.................. 12,245,823 4,199,691 6,109,616
Income tax expense (Note 4)....................... 4,834,000 1,576,000 2,258,350
------------ ------------ -----------
Net income........................................ $ 7,411,823 $ 2,623,691 $ 3,851,266
============ ============ ===========
Net income per common and common equivalent share
(Note 1)........................................ $ 0.89 $ 0.33 $ 0.48
============ ============ ===========
Weighted average common and common equivalent
shares outstanding.............................. 8,303,078 8,023,007 7,976,769
============ ============ ===========
</TABLE>

See notes to financial statements.

F-4
<PAGE> 43

PACIFIC SUNWEAR OF CALIFORNIA, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON COMMON ADDITIONAL
STOCK STOCK PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 30, 1994............ 7,430,967 $74,310 $28,249,663 $ 2,840,559 $31,164,532
Exercise of stock options and
restricted stock grant (Note
6).............................. 287,298 2,873 222,881 -- 225,754
Tax benefit related to exercise of
stock options (Note 6).......... -- -- 178,035 -- 178,035
Net income......................... -- -- -- 3,851,266 3,851,266
--------- ------- ----------- ----------- -----------
BALANCE, JANUARY 29, 1995............ 7,718,265 77,183 28,650,579 6,691,825 35,419,587
Exercise of stock options and
restricted stock grant (Note
6).............................. 231,992 2,320 162,125 -- 164,445
Tax benefit related to exercise of
stock options (Note 6).......... -- -- 101,664 -- 101,664
Net income......................... -- -- -- 2,623,691 2,623,691
--------- ------- ----------- ----------- -----------
BALANCE, FEBRUARY 4, 1996............ 7,950,257 79,503 28,914,368 9,315,516 38,309,387
Exercise of stock options and
restricted stock grant (Note
6).............................. 260,655 2,607 1,075,478 -- 1,078,085
Cancellation of restricted stock
(Note 6)........................ (118,757) (1,188) -- -- (1,188)
Cancellation of fractional shares
due to 3-for-2 stock split (Note
1).............................. (48) (1) (1,692) -- (1,693)
Tax benefit related to exercise of
stock options (Note 6).......... -- -- 749,628 -- 749,628
Net income......................... -- -- -- 7,411,823 7,411,823
--------- ------- ----------- ----------- -----------
BALANCE, FEBRUARY 2, 1997............ 8,092,107 $80,921 $30,737,782 $16,727,339 $47,546,042
========= ======= =========== =========== ===========
</TABLE>

See notes to financial statements.

F-5
<PAGE> 44

PACIFIC SUNWEAR OF CALIFORNIA, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------
FEBRUARY 2, FEBRUARY 4, JANUARY 29,
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 7,411,823 $ 2,623,691 $ 3,851,266
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 5,273,060 4,304,693 2,877,923
Change in:
Accounts receivable............................. (260,512) (50,559) (149,206)
Merchandise inventories......................... (4,351,568) (4,292,654) (4,995,679)
Prepaid expenses................................ (764,990) (610,925) (922,372)
Deposits and other assets....................... (158,279) (316,211) 103,188
Accounts payable................................ 1,418,065 625,717 2,305,479
Accrued liabilities............................. 3,288,275 952,836 212,300
Income taxes and deferred taxes................. 1,022,326 598,787 (223,696)
Deferred rent................................... 415,106 866,596 890,595
Deferred compensation........................... 185,709 (8,781) 134,129
----------- ----------- ------------
Net cash provided by operating activities.... 13,479,015 4,693,190 4,083,927

CASH FLOWS FROM INVESTING ACTIVITIES:
Short-term investment purchases...................... -- -- (6,500,000)
Short-term investment maturities..................... -- 7,501,282 13,763,344
Investment in property and equipment................. (8,126,185) (9,760,700) (11,473,674)
----------- ----------- ------------
Net cash used in investing activities........ (8,126,185) (2,259,418) (4,210,330)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under loan agreement and capital
lease obligations................................. (781,250) (382,274) (471,618)
Principal borrowings under loan agreement............ -- -- 1,500,000
Proceeds from exercise of stock options.............. 1,075,204 266,109 403,789
----------- ----------- ------------
Net cash provided by (used in) financing
activities................................. 293,954 (116,165) 1,432,171
----------- ----------- ------------

NET INCREASE IN CASH AND CASH EQUIVALENTS.............. 5,646,784 2,317,607 1,305,768
CASH AND CASH EQUIVALENTS, beginning of fiscal
year............................................ 4,315,842 1,998,235 692,467
----------- ----------- ------------
CASH AND CASH EQUIVALENTS, end of fiscal year..... $ 9,962,626 $ 4,315,842 $ 1,998,235
========== ========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.......................................... $ 11,752 $ 145,698 $ 106,291
Income taxes...................................... 3,811,674 875,549 2,304,011
</TABLE>

- ---------------

Non-cash transaction: During the fiscal years ended February 2, 1997, February
4, 1996 and January 29, 1995, the Company recorded an increase to additional
paid-in capital of $749,628, $101,664 and $178,035, respectively, related to tax
benefits associated with the exercise of non-qualified stock options.

See notes to financial statements.

F-6
<PAGE> 45

PACIFIC SUNWEAR OF CALIFORNIA, INC.

NOTES TO FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED FEBRUARY 2, 1997, FEBRUARY 4, 1996 AND JANUARY 29,
1995

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business -- Pacific Sunwear of California, Inc. (the "Company")
is a mall-based specialty retailer of everyday casual apparel, accessories and
footwear designed to meet the lifestyle needs of active teens and young adults.

Fiscal Year -- The Company's fiscal year is a 52- or 53-week period ending
near January 31. Fiscal 1996 was a 52-week period ended February 2, 1997. Fiscal
1995 was a 53-week period ended February 4, 1996. Fiscal 1994 was a 52-week
period ended January 29, 1995.

Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles necessarily requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported expenses during the reported period.
Actual results could differ from these estimates.

Fair Value of Financial Instruments -- Statement of Financial Accounting
Standards No. 107, Disclosures about Fair Value of Financial Instruments ("SFAS
No. 107") requires management to disclose the estimated fair value of certain
assets and liabilities defined by SFAS No. 107 as financial instruments.
Financial instruments are generally defined by SFAS No. 107 as cash, evidence of
ownership interest in an entity, or a contractual obligation that both conveys
to one entity a right to receive cash or other financial instruments from
another entity and imposes on the other entity the obligation to deliver cash or
other financial instruments to the first entity. At February 2, 1997, management
believes that the carrying amounts of cash, receivables, and payables
approximate fair value because of the short maturity of these financial
instruments.

Merchandise Inventories -- Merchandise inventories are stated at the lower
of cost (first-in, first-out method) or market.

Property and Equipment -- Leasehold improvements and furniture, fixtures
and equipment are stated at cost. Amortization of leasehold improvements is
computed on the straight-line method over the life of the lease (generally 10
years). Depreciation on furniture, fixtures and equipment is computed on the
straightline method over five years.

Intangible Asset -- Excess of cost over net assets acquired (goodwill),
which arose from the acquisition of four stores in 1986, is being amortized on a
straight-line method over 40 years. The Company evaluates the recoverability of
its goodwill at each balance sheet date. The recoverability of goodwill is
determined by comparing the carrying value of the goodwill to the estimated
operating income of the related entity on an undiscounted cash flow basis. Any
impairment is recorded at the date of determination.

In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("SFAS No. 121"). SFAS No. 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used and
long-lived assets and certain identifiable intangibles to be disposed of. The
Company adopted SFAS No. 121 in the first interim period of fiscal 1996, and
such adoption did not impact its financial position or results of operations.

Income Taxes -- The Company accounts for income taxes under the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Deferred taxes on income result from temporary differences between the
reporting of income for financial statements and tax reporting purposes.

F-7
<PAGE> 46

PACIFIC SUNWEAR OF CALIFORNIA

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEARS ENDED FEBRUARY 2, 1997, FEBRUARY 4, 1996 AND JANUARY 29,
1995

Deferred Rent -- The Company's policy is to average any defined rental
escalations over the term of the related lease in order to provide level
recognition of rent expense.

Statements of Cash Flows -- For purposes of the statements of cash flows,
the Company considers all highly-liquid debt instruments, if any, purchased with
a maturity of three months or less to be cash equivalents.

Stock Split -- On October 9, 1996, the Company effected a three-for-two
stock split. Shareholders' equity has been restated to give retroactive
recognition to the stock split in prior periods by reclassifying the par value
($26,501) of the additional shares arising from the split from additional
paid-in capital to common stock.

Net Income per Common and Common Equivalent Share -- Net income per common
and common equivalent share was computed based on the net income divided by the
weighted average number of common and common equivalent shares outstanding
during the years presented after giving effect to the stock split. Primary
income per share approximates fully diluted income per share in each year
presented. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
No. 128") which is effective for financial statements issued for periods ending
after December 15, 1997. SFAS No. 128 requires the disclosure of basic and
diluted earnings per share. For the year ended February 2, 1997, the amount
reported as net income per common and common equivalent share is not materially
different from that which would have been reported for basic and diluted
earnings per share in accordance with SFAS No. 128.

Stock-Based Compensation -- In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). The Company has
determined that it will not change to the fair value method and will continue to
use Accounting Principles Board Opinion No. 25 for measurement and recognition
of employee stock based transactions. See Note 6 for disclosure of the pro forma
effect on net income and earnings per share.

Merchandise Risk -- The Company's success is largely dependent upon its
ability to gauge the fashion tastes of its customers and provide merchandise
that satisfies customer demand. Any inability to provide appropriate merchandise
in sufficient quantities in a timely manner could have a material adverse effect
on the Company's business, operating results and financial condition.

2. CREDIT FACILITY

The Company has a credit facility with a bank which expires in August 1998.
The credit facility provides for an $11.5 million line of credit, which includes
sub-limits of $7.5 million each for cash advances and commercial letters of
credit. Interest on advances under the line of credit facility is payable
monthly at the bank's prime rate (8.25% at February 2, 1997). At February 2,
1997, the Company had $2.0 million in letters of credit outstanding and no cash
advances outstanding. The loan agreement subjects the Company to various
restrictive covenants, including maintenance of certain financial ratios and
prohibits payment of cash dividends on capital stock. At February 2, 1997, the
Company was in compliance with such covenants.

3. COMMON STOCK

The Company's articles of incorporation provide for the authorization of
22,500,000 shares of common stock at a par value of $.01 per share. At February
2, 1997, there were 8,092,107 shares of common stock outstanding. On March 22,
1993, the Company sold 2,100,000 shares of its Common Stock in an initial public
offering. The net proceeds to the Company from the offering were

F-8
<PAGE> 47

PACIFIC SUNWEAR OF CALIFORNIA

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEARS ENDED FEBRUARY 2, 1997, FEBRUARY 4, 1996 AND JANUARY 29,
1995

$16.0 million. On March 22, 1993, all outstanding shares of redeemable preferred
stock were converted into shares of common stock in conjunction with the
Company's initial public offering of its common stock. On October 9, 1996, the
Company effected a three-for-two stock split. Shareholders' equity has been
restated to give retroactive recognition to the stock split in prior periods by
reclassifying the par value ($26,501) of the additional shares arising from the
split from additional paid-in capital to common stock.

4. INCOME TAXES

The components of income tax expense are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------
FEBRUARY 2, FEBRUARY 4, JANUARY 29,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current income taxes:
Federal...................................... $ 3,602,278 $ 1,323,047 $ 1,612,616
State........................................ 959,621 374,676 558,196
---------- ---------- ----------
4,561,899 1,697,723 2,170,812
Deferred income taxes:
Federal...................................... 272,196 (97,707) 138,950
State........................................ (95) (24,016) (51,412)
---------- ---------- ----------
272,101 (121,723) 87,538
---------- ---------- ----------
$ 4,834,000 $ 1,576,000 $ 2,258,350
========== ========== ==========
</TABLE>

A reconciliation of the income tax expense to the amount of income tax
expense that would result from applying the federal statutory rate to income
before income taxes is as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------
FEBRUARY 2, FEBRUARY 4, JANUARY 29,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Provision for income taxes at statutory rate... $ 4,286,000 $ 1,470,000 $ 2,138,000
State income taxes, net of Federal income tax
benefit...................................... 624,000 228,000 329,000
Tax-exempt interest income..................... -- (50,000) (142,000)
Other.......................................... (76,000) (72,000) (66,650)
---------- ---------- -----------
$ 4,834,000 $ 1,576,000 $ 2,258,350
========== ========== ===========
</TABLE>

F-9
<PAGE> 48

PACIFIC SUNWEAR OF CALIFORNIA

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEARS ENDED FEBRUARY 2, 1997, FEBRUARY 4, 1996 AND JANUARY 29,
1995

At February 2, 1997 and February 4, 1996, the Company's current net
deferred tax asset was $1,358,733 and $1,160,179, respectively, and long-term
net deferred tax liability was $1,456,463 and $985,808, respectively. The major
components of the Company's net deferred tax liability of $(97,730) and net
deferred tax assets of $174,371 at February 2, 1997 and February 4, 1996,
respectively, are as follows:

<TABLE>
<CAPTION>
FEBRUARY 2, FEBRUARY 4,
1997 1996
----------- -----------
<S> <C> <C>
Depreciation.............................................. $(2,991,412) $(2,250,759)
Alternative minimum tax carryforwards..................... 147,902 605,371
Deferred rent............................................. 1,311,678 1,149,689
Reserve for store expansion/relocation and closing
costs................................................... 595,079 231,041
State income taxes........................................ 113,932 33,078
Inventory cost capitalization............................. 354,998 265,393
Deferred compensation..................................... 155,028 78,217
Other..................................................... 215,065 62,341
----------- -----------
$ (97,730) $ 174,371
=========== ===========
</TABLE>

At February 2, 1997, the Company had, for state franchise tax purposes,
alternative minimum tax credit carryforwards of approximately $148,000 which
have no expiration date.

5. COMMITMENTS AND CONTINGENCIES

Operating Leases -- The Company leases its retail stores, a corporate
office and distribution facility and certain equipment under operating lease
agreements expiring at various dates through 2008. Substantially all of the
leases require the Company to pay maintenance, insurance, property taxes and
percentage rent ranging from 5% to 7% based on sales volumes over certain
minimum sales levels.

Minimum future annual rental commitments under noncancelable leases are as
follows:

<TABLE>
<S> <C>
Fiscal year ending:
February 1, 1998.................................. $ 15,773,589
January 31, 1999.................................. 16,067,394
January 30, 2000.................................. 15,871,864
January 28, 2001.................................. 15,098,714
February 2, 2002.................................. 14,497,341
Thereafter........................................ 49,045,847
------------
$126,354,749
===========
</TABLE>

Rental expense, including common area maintenance, was $20,783,388,
$17,010,342 and $11,675,633 of which $280,002, $118,507 and $203,096 was paid as
percentage rent based on sales volume for the fiscal years ended February 2,
1997, February 4, 1996 and January 29, 1995, respectively.

Letters of Credit -- The Company was contingently liable for $2.0 million
in open letters of credit with foreign suppliers at February 2, 1997.

Litigation -- The Company is involved from time to time in litigation
incidental to its business. Management believes that the outcome of current
litigation will not have a material adverse effect upon the operations or
financial condition of the Company.

F-10
<PAGE> 49

PACIFIC SUNWEAR OF CALIFORNIA

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEARS ENDED FEBRUARY 2, 1997, FEBRUARY 4, 1996 AND JANUARY 29,
1995

6. STOCK OPTION AND RETIREMENT PLANS

Under the Company's stock option plans, incentive and non-qualified options
have been granted to employees, directors and consultants to purchase common
stock at prices equal to the fair value of the Company's shares at the grant
dates.

At February 2, 1997, outstanding incentive and non-qualified options had
exercise prices ranging from $.39 to $23.38 per share, with a weighted average
exercise price of $9.34, and generally begin vesting one year after the grant
date. On the initial vesting date, 25% of the options vest and, thereafter,
options generally continue to vest at 2.08% each calendar month. The options
generally expire ten years from the date of grant or 90 days after employment or
services are terminated.

At February 2, 1997, incentive and non-qualified options to purchase
812,889 shares were outstanding. At February 2, 1997, 152,375 shares were
available for future grants under the Company's stock option plans. During the
years ended February 2, 1997, February 4, 1996, and January 29, 1995, the
Company recognized tax benefits of $749,628, $101,664 and $178,035,
respectively, resulting from the exercise of certain non-qualified stock
options. Stock option (incentive and non-qualified) activity for the three years
ended February 2, 1997 was as follows:

<TABLE>
<CAPTION>
STOCK OPTIONS
-------------------------------
NUMBER PRICE RANGE
OF SHARES PER SHARE
--------- ---------------
<S> <C> <C>
Balance at January 30, 1994............................ 793,695 $.39 to $10.00
Options granted...................................... 186,300 5.00 to 11.59
Options canceled..................................... (2,866) .39 to 1.55
Options exercised.................................... (287,298) .39 to 1.55
--------
Balance at January 29, 1995............................ 689,831 .39 to 11.59
Options granted...................................... 99,750 4.33 to 9.17
Options canceled..................................... (21,940) 1.55 to 10.00
Options exercised.................................... (96,992) .39 to 5.33
--------
Balance at February 4, 1996............................ 670,649 .39 to 11.59
Options granted...................................... 490,500 5.09 to 23.38
Options canceled..................................... (87,605) 1.21 to 10.00
Options exercised.................................... (260,655) .39 to 11.17
--------
Balance at February 2, 1997............................ 812,889 .39 to 23.38
========
</TABLE>

The following is a summary of the weighted average exercise prices for
activity during the year ended February 2, 1997:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
-------- --------------
<S> <C> <C>
Beginning outstanding....................................... 670,649 $ 4.67
Options granted........................................ 490,500 12.20
Options exercised...................................... (260,655) 4.11
Options canceled....................................... (87,605) 5.16
--------
Ending outstanding.......................................... 812,889 9.34
Exercisable as of February 2, 1997.......................... 189,364 3.97
</TABLE>

F-11
<PAGE> 50

PACIFIC SUNWEAR OF CALIFORNIA

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEARS ENDED FEBRUARY 2, 1997, FEBRUARY 4, 1996 AND JANUARY 29,
1995

Additional information regarding options outstanding as of February 2, 1997
is as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ----------------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE EXERCISABLE
AS OF REMAINING WEIGHTED AS OF WEIGHTED
RANGE OF FEBRUARY 2, CONTRACTUAL AVERAGE FEBRUARY 2, AVERAGE
EXERCISE PRICES 1997 LIFE EXERCISE PRICE 1997 EXERCISE PRICE
- ----------------------------------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ .39 - $ 5.33.................... 165,236 5.59 $ 3.06 115,544 $ 2.22
5.50 - 5.67.................... 65,468 7.09 5.57 38,011 5.59
5.83 - 5.83.................... 240,000 9.01 5.83 -- --
6.00 - 15.42.................... 164,435 8.45 9.84 35,809 7.90
16.00 - 23.38.................... 177,750 9.76 20.83 -- --
------- -------
.39 - 23.38.................... 812,889 8.21 9.34 189,364 3.97
======= =======
</TABLE>

In January 1996, the Company's previous Chief Executive Officer resigned
effective March 1996, and surrendered 118,757 unvested shares of restricted
stock to the Company which were subsequently canceled.

As discussed in Note 1, the Company continues to account for its
stock-based awards using the intrinsic value method in accordance with
Accounting Principles Board Opinion No. 25, " Accounting for Stock Issued to
Employees" and its related interpretations. Accordingly, no compensation expense
has been recognized in the financial statements for employee stock arrangements.

Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," requires the disclosure of pro forma net income and
net income per share had the Company adopted the fair value method as of the
beginning of fiscal 1995. Under SFAS No. 123, the fair value of stock-based
awards to employees is calculated through the use of option pricing models, even
though such models were developed to estimate the fair value of freely tradable,
fully transferable options without vesting restrictions, which significantly
differ from the Company's stock option awards. These models also require
subjective assumptions, including future stock price volatility and expected
time to exercise, which greatly affect the calculated values. The Company's
calculations were made using the Black-Scholes option pricing model with the
following weighted average assumptions: expected life, 5 years following
vesting; stock volatility, 80.3% in fiscal 1996 and 92.2% in fiscal 1995; risk
free interest rates, 6.6% in fiscal 1996 and 6.2% in fiscal 1995; and no
dividends during the expected term. The Company's calculations are based on a
multiple option valuation approach and forfeitures are recognized as they occur.
If the computed fair values of the fiscal 1996 and fiscal 1995 awards had been
amortized to expense over the vesting period of the awards, pro forma net income
and net income per share would have been reduced to the pro forma amounts
indicated below:

<TABLE>
<CAPTION>
FISCAL FISCAL
1996 1995
---------- ----------
<S> <C> <C> <C>
Net income.......................... As reported.......... $7,411,823 $2,632,691
Pro forma............ 7,056,742 2,592,916
Net income per common and
equivalent share.................. As reported.......... 0.89 0.33
Pro forma............ 0.86 0.32
</TABLE>

The impact of outstanding non-vested stock options granted prior to fiscal
1995 has been excluded from the pro forma calculation; accordingly, the fiscal
1995 and fiscal 1996 pro forma adjustments are not indicative of future period
pro forma adjustments, when the calculation will apply to all stock options
granted after fiscal 1994.

F-12
<PAGE> 51

PACIFIC SUNWEAR OF CALIFORNIA

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEARS ENDED FEBRUARY 2, 1997, FEBRUARY 4, 1996 AND JANUARY 29,
1995

In fiscal 1995, the Company established the Pacific Sunwear of California,
Inc. Executive Deferred Compensation Plan (the "Executive Plan"). The Executive
Plan covers officers of the Company, and is funded by participant contributions
and periodic discretionary contributions from the Company. For each of the three
fiscal years in the period ended February 2, 1997, the Company made
contributions of $34,900, $13,545 and $-0-, respectively, to the Executive Plan.

In 1992, the Company established the Pacific Sunwear of California, Inc.
Employee Savings Plan ("the 401(k) Plan"). The 401(k) Plan is a defined
contribution plan covering substantially all employees who have reached age 21
and have one year of service with the Company. The 401(k) Plan is funded by
employee contributions and periodic discretionary contributions from the
Company, which are subject to approval by the Company's Board of Directors. For
each of the three fiscal years in the period ended February 2, 1997, the Company
made contributions of $66,750, $59,100 and $31,000, respectively, to the 401(k)
Plan.

7. ACCRUED LIABILITIES

Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
FEBRUARY 2, FEBRUARY 4,
1997 1996
----------- -----------
<S> <C> <C>
Accrued compensation and benefits........................... $2,939,217 $1,349,268
Reserve for store expansion/relocation and closing costs.... 1,424,315 547,491
Sales tax payable........................................... 401,181 259,598
Gift certificates and store merchandise credits............. 439,994 234,904
Other....................................................... 830,982 356,153
---------- ----------
$6,035,689 $2,747,414
========== ==========
</TABLE>

8. QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED FEBRUARY 2, 1997:
Net sales................................. $27,641,000 $34,567,000 $43,247,000 $49,807,000
Gross margin.............................. 7,278,000 10,818,000 14,287,000 16,752,000
Operating income (loss)................... (298,000) 2,426,000 4,450,000 5,431,000
Net income (loss)......................... (170,000) 1,485,000 2,739,000 3,357,000
----------- ----------- ----------- -----------
Net income (loss) per share............... $ (0.02) $ 0.18 $ 0.33 $ 0.40
Weighted average common and common
equivalent shares outstanding (Note
1)..................................... 7,892,310 8,285,502 8,342,081 8,394,821

FISCAL YEAR ENDED FEBRUARY 4, 1996:
Net sales................................. $19,477,000 $25,672,000 $31,368,000 $36,404,000
Gross margin.............................. 4,652,000 7,190,000 9,662,000 10,629,000
Operating income (loss)................... (1,079,000) 357,000 2,142,000 2,717,000
Net income (loss)......................... (619,000) 218,000 1,323,000 1,701,000
----------- ----------- ----------- -----------
Net income (loss) per share............... $ (0.08) $ 0.03 $ 0.17 $ 0.21
Weighted average common and common
equivalent shares outstanding (Note
1)..................................... 7,732,377 7,971,036 7,795,304 8,044,598
</TABLE>

F-13
<PAGE> 52

PACIFIC SUNWEAR OF CALIFORNIA, INC.

CONDENSED BALANCE SHEET
(UNAUDITED)

ASSETS

<TABLE>
<CAPTION>
MAY 4,
1997
------------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 7,196,956
Accounts receivable.......................................................... 803,367
Prepaid income taxes......................................................... 304,540
Merchandise inventories...................................................... 22,461,924
Prepaid expenses, includes $1,948,487 of prepaid rent........................ 3,036,047
Deferred taxes............................................................... 1,358,733
------------
Total current assets...................................................... 35,161,567
PROPERTY AND EQUIPMENT:
Leasehold improvements....................................................... 27,210,834
Furniture, fixtures and equipment............................................ 21,901,491
------------
49,112,325
Less accumulated depreciation and amortization............................... (17,419,688)
------------
Net property and equipment................................................ 31,692,637
OTHER ASSETS:
Goodwill, net of accumulated amortization of $298,886........................ 789,857
Deposits and other assets.................................................... 694,358
------------
Total other assets........................................................ 1,484,215
------------
Total assets......................................................... $ 68,338,419
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................. $ 8,502,095
Accrued liabilities (Note 4)................................................. 5,245,289
Income taxes payable......................................................... --
------------
Total current liabilities................................................. 13,747,384
DEFERRED COMPENSATION.......................................................... 654,997
DEFERRED RENT.................................................................. 3,254,754
DEFERRED TAXES................................................................. 1,456,463
SHAREHOLDERS' EQUITY:
Preferred Stock, par value $.01; authorized, 5,000,000 shares; none issued
and outstanding
Common Stock, par value $.01; authorized, 22,500,000 shares; issued and
outstanding, 8,135,134 shares............................................. 81,352
Additional paid-in capital................................................... 31,291,852
Retained earnings............................................................ 17,851,617
------------
Total shareholders' equity................................................ 49,224,821
------------
Total liabilities and shareholders' equity........................... $ 68,338,419
============
</TABLE>

See accompanying notes

F-14
<PAGE> 53

PACIFIC SUNWEAR OF CALIFORNIA, INC

CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
---------------------------
MAY 4, 1997 MAY 5, 1996
----------- -----------
<S> <C> <C>
Net sales......................................................... $38,932,736 $27,640,975
Cost of goods sold (including buying, distribution, and occupancy
costs).......................................................... 27,225,628 20,362,870
----------- -----------
Gross margin...................................................... 11,707,108 7,278,105
Selling, general and administrative expenses...................... 9,942,532 7,576,340
----------- -----------
Operating income (loss)........................................... 1,764,576 (298,235)
Interest income, net.............................................. 95,702 29,659
----------- -----------
Income (loss) before income tax expense (benefit)................. 1,860,278 (268,576)
Income tax expense (benefit)...................................... 736,000 (99,000)
----------- -----------
Net income (loss)................................................. $ 1,124,278 $ (169,576)
=========== ===========
Net income (loss) per common and common equivalent share.......... $ 0.13 $ (0.02)
=========== ===========
Weighted average common and common equivalent shares outstanding.. 8,442,791 7,892,310
=========== ===========
</TABLE>

See accompanying notes

F-15
<PAGE> 54

PACIFIC SUNWEAR OF CALIFORNIA, INC

CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
---------------------------
MAY 4, 1997 MAY 5, 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................... $ 1,124,278 $ (169,576)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization................................ 1,474,235 1,234,916
Change in:
Accounts receivable........................................ (219,556) (316,597)
Merchandise inventories.................................... (2,701,512) (2,707,960)
Prepaid expenses........................................... 180,113 57,426
Deposits and other assets.................................. (171,340) (29,919)
Accounts payable........................................... 1,815,534 4,264,612
Accrued liabilities........................................ (790,400) 642,704
Income taxes and deferred income taxes..................... (324,350) (557,150)
Deferred rent.............................................. 115,267 131,760
Deferred compensation...................................... 283,940 56,786
----------- -----------
Net cash provided by operating activities............... 786,209 2,607,002

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in property and equipment............................ (3,656,932) (1,521,251)
----------- -----------
Net cash used in investing activities................... (3,656,932) (1,521,251)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under loan agreement......................... -- (781,250)
Proceeds from exercise of stock options......................... 105,053 488,276
----------- -----------
Net cash provided by (used in) financing activities..... 105,053 (292,974)
----------- -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............. (2,765,670) 792,777
CASH AND CASH EQUIVALENTS, beginning of period.................. 9,962,626 4,315,842
----------- -----------
CASH AND CASH EQUIVALENTS, end of period........................ $ 7,196,956 $ 5,108,619
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest..................................................... $ 478 $ 10,685
Income taxes................................................. 1,060,350 458,150
</TABLE>

- ---------------

Non-cash transaction: During the thirteen weeks ended May 4, 1997, the Company
recorded an increase to additional paid-in capital of $449,448 related to tax
benefits associated with the exercise of non-qualified stock options.

See accompanying notes

F-16
<PAGE> 55

PACIFIC SUNWEAR OF CALIFORNIA, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED MAY 4, 1997 AND MAY 5, 1996

NOTE 1 -- BASIS OF PRESENTATION

The information set forth in these condensed financial statements as of May
4, 1997 and for the thirteen weeks ended May 4, 1997 and May 5, 1996 is
unaudited. The information reflects all adjustments consisting only of normal
recurring entries that, in the opinion of management, are necessary to present
fairly the financial position and results of operations of the Company for the
periods indicated. Results of operations for the thirteen weeks ended May 4,
1997 are not necessarily indicative of the results of operations for the full
fiscal year.

Certain information in the footnote disclosures normally included in
financial statements has been condensed or omitted, in accordance with the rules
and regulations of the Securities and Exchange Commission.

The information in these interim statements should be read in conjunction
with the Company's audited financial statements as of February 2, 1997 contain
elsewhere in this Prospectus.

NOTE 2 -- NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE

Net income (loss) per common and common equivalent share is based on the
weighted average number of common and common equivalent shares outstanding
during the relevant periods. For the thirteen weeks ended May 5, 1996, no effect
has been given to options outstanding under the Company's Stock Option Plan as
they were not dilutive.

Stock Split -- On October 9, 1996, the Company effected a three-for-two
stock split. Earnings per share and share outstanding amounts have been given
retroactive effect in these financial statements.

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128")
which is effective for financial statements issued for periods ending after
December 15, 1997. SFAS No. 128 requires the disclosure of basic and diluted
earnings per share. For the thirteen weeks ended May 4, 1997, the amount
reported as net income per common and common equivalent share is not materially
different from that which would have been reported for basic and diluted
earnings per share in accordance with SFAS No. 128.

NOTE 3 -- FEDERAL AND STATE INCOME TAX EXPENSE(BENEFIT)

The combined federal and state income tax expense (benefit) were calculated
using estimated effective annual tax rates.

NOTE 4 -- ACCRUED LIABILITIES

Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
MAY 4,
1997
----------
<S> <C>
Accrued compensation and benefits........................................ $1,932,561
Reserve for expansion/relocation and closing costs....................... 1,669,156
Other accrued liabilities................................................ 1,643,572
----------
$5,245,289
==========
</TABLE>

F-17
<PAGE> 56

[BACK COVER: LARGE PHOTOGRAPH DEPICTING STORE INTERIOR WITH SMALLER PHOTOGRAPHS
BELOW FEATURING YOUNG ADULTS IN ACTIVE MODES MODELLING APPAREL OFFERED BY THE
COMPANY.]
<PAGE> 57

[PACIFIC SUNWEAR LOGO]
<PAGE> 58

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the expenses, other than the underwriting
discounts and commission, payable by the Company in connection with the offer
and sale of the Common Stock being registered. All amounts are estimates except
the Securities and Exchange Commission registration fee, the Nasdaq listing fee
and the NASD filing fee.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee....................... $ 9,568
NASDAQ listing fee........................................................ 16,100
NASD filing fee........................................................... 3,658
Accounting fees and expenses.............................................. 35,000
Legal fees and expenses................................................... 125,000
Blue Sky fees and expenses (including fees of counsel).................... 5,000
Printing and engraving expenses........................................... 70,000
Miscellaneous............................................................. 35,674
--------
Total................................................................... $300,000
========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Articles of Incorporation of the Company provide that the liability of
the Company's directors for monetary damages shall be eliminated to the fullest
extent permitted under California law. The Company's Bylaws include a provision
that eliminates, to the fullest extent permitted by California law, the personal
liability of its directors and officers for monetary damages in any legal
proceeding based on their action or inaction as a director or officer, subject
to certain limitations for actions initiated by the director or officer,
settlements not approved by the Company, losses covered by the directors' and
officers' liability insurance policy maintained by the Company, and judgments
for an accounting of profits pursuant to Section 16(b) of the Securities
Exchange Act of 1934 and similar laws.

The General Corporations Law of California (the "Law") (i) eliminates the
liability of directors and officers for monetary damages in an action brought by
a shareholder in the right of the Company (referred to herein as a "derivative
action") or by the Company for breach of duty to the Company and its
shareholders and (ii) authorizes the Company to indemnify directors and officers
for monetary damages for all acts or omissions committed by them in their
respective capacities. Both the Law and the Bylaws of the Company, however,
prohibit indemnification for (a) acts or omissions that involve intentional
misconduct or knowing and culpable violation of law, (b) acts or omissions that
a director or officer believes to be contrary to the best interests of the
Company or its shareholders or that involve the absence of good faith on the
part of a director or officer seeking indemnification, (c) any transaction from
which a director or officer derives an improper personal benefit, (d) acts or
omissions that show a reckless disregard for the director's or officer's duty to
the Company or its shareholders in circumstances in which such person was aware,
or should have been aware, in the ordinary course of performing his or her other
duties, of a risk of serious injury to the Company or its shareholders, (e) acts
or omissions that constitute an unexcused pattern of inattention that amounts to
an abdication of the director's or officer's duty to the Company or its
shareholders and (f) liabilities arising under Section 310 (contracts in which a
director has material financial interest) and 316 (certain unlawful dividends,
distributions, loans, and guarantees) of the Law. In addition, the Company may
not indemnify directors and officers in circumstances in which indemnification
is expressly prohibited by Section 317 of the Law.

The Company has entered into indemnification agreements with its directors
and executive officers that require the Company to indemnify such directors and
officers to the fullest extent permitted by applicable provisions of the Law,
provided that any settlement of a third party action

II-1
<PAGE> 59

against a director or officer is approved by the Company, and subject to
limitations for actions initiated by the director or officer, penalties paid by
insurance, and violations of Section 16(b) of the Securities Exchange Act of
1934 and similar laws.

Reference is also made to the provisions of Section 8 of the Underwriting
Agreement, the proposed form of which is filed as Exhibit 1.1 hereto.

ITEM 16. EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ --------------------------------------------------------------------------
<C> <S>
1.1 + Form of Underwriting Agreement
5.1 + Opinion of O'Melveny & Myers LLP
23.1 Consent of Deloitte & Touche LLP
23.2 + Consent of O'Melveny & Myers LLP (included in Exhibit 5.1)
24.1 + Power of Attorney (included on page II-4)
</TABLE>

- ---------------

+ Previously filed.

ITEM 17. UNDERTAKINGS.

(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 (the "Act"), each
filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act")); that is incorporated by
reference in the Registration Statement shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.

(b) The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X is not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.

(c) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described in Item 15 hereof, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-2
<PAGE> 60

(d) The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

II-3
<PAGE> 61

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Anaheim, State of California on June 6, 1997.

PACIFIC SUNWEAR OF CALIFORNIA, INC.

By: /s/ GREG H. WEAVER

------------------------------------
Greg H. Weaver
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------- ------------
<C> <S> <C>

/s/ GREG H. WEAVER President, Chief Executive June 6, 1997
- --------------------------------------------- Officer and Director
Greg H. Weaver (Principal Executive Officer)

/s/ CARL W. WOMACK Senior Vice President, Chief June 6, 1997
- --------------------------------------------- Financial Officer and Secretary
Carl W. Womack (Principal Financial and
Accounting Officer)

* Chairman of the Board of June 6, 1997
- --------------------------------------------- Directors
Julius Jensen III

* Director June 6, 1997
- ---------------------------------------------
Pearson C. Cummin III

* Director June 6, 1997
- ---------------------------------------------
Peter L. Harris

* Director June 6, 1997
- ---------------------------------------------
James B. McCurry
</TABLE>

*By: /s/ CARL W. WOMACK

----------------------------

Carl W. Womack

Attorney-in-Fact

II-4
<PAGE> 62

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ ----------------------------------------------------------------- -----------
<C> <S> <C>
1.1+ Form of Underwriting Agreement...................................
5.1+ Opinion of O'Melveny & Myers LLP.................................
23.1 Consent of Deloitte & Touche LLP.................................
23.2+ Consent of O'Melveny & Myers LLP (included in Exhibit 5.1).......
24.1+ Power of Attorney (included on Page II-4)........................
</TABLE>

- ---------------

+ Previously filed.

<PAGE> 1

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment No. 1 to Registration Statement No.
333-28047 of Pacific Sunwear of California, Inc. on Form S-3, of our report
dated March 11, 1997, appearing in the Prospectus, which is part of this
Registration Statement. We also consent to the reference to us under the
headings "Selected Financial Data" and "Experts" in such Prospectus.

DELOITTE & TOUCHE LLP

Costa Mesa, CA

June 6, 1997