Though the economy is still improving, the ever-looming threat of a double dip recession is still present. This would have a devastating influence on the retail sector. So, investors should still be nervous about the near-term for this sector. With that said, let's look at Pacific Sunwear (Nasdaq:PSUN) in a little more detail, on the heels of its quarterly earnings release.

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A Less than Pretty Outlook
In the quarter, the company posted a sizable loss of 17 cents a share, but that was three cents better than expected. To its credit, the company also exceeded expectations on the revenue line. But what really generated a significant amount of chatter is the company's outlook for the fourth quarter, which isn't overly inspirational. Analysts were looking for a loss of 11 cents a share, and are now expecting a loss of 30 cents. According to data on Yahoo! Finance, analysts are looking for it to lose 81 cents and 44 cents respectively for this year and next year, which isn't going to cause a bunch of new investors to climb aboard.

The shares actually got pummeled after the opening bell on Tuesday morning, and were down more than $1 in early trading. If the stock keeps taking a hit, it could sell off as tax loss selling season ramps up. Also, at under $5 a share, some institutions and retail investors may stop paying attention.

Other Players Worth a Passing Glance
Gap, Inc (NYSE: GPS) shares have been performing very well. Although the domestic economy is under duress, it's expected to generate profits this year and next year, which is clearly a positive. It also trades at just 14.7 times this year's estimate, which is a solid value. Also, American Eagle (NYSE:AEO) is another chain that is expected to be well in the black this year and the next.

The Bottom Line
Pacific Sun is not worth bottom fishing right now. Its less-than-stellar outlook and the fact that its expected to be in the red should keep investors on the sidelines. (To learn more, read Analyzing Retail Stocks.)

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Tickers in this Article: PSUN, AEO, GPS, TGT

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