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SECURITIES AND EXCHANGE COMMISSION

Washington D.C 20549


FORM 10-Q

|    |  |                                                                                         
|--- |  | ----------------------------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended May 3, 2003

OR

|     |  |                                                                                          
|---- |  | -----------------------------------------------------------------------------------------
|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission file number 0-21296

PACIFIC SUNWEAR OF CALIFORNIA, INC.

|                                                                                       |  |                                               
|-------------------------------------------------------------------------------------- |  | ----------------------------------------------
|CALIFORNIA
(State of Incorporation)                                                    |  | 95-3759463
(I.R.S Employer Identification No.)
|                                                                                       |  |                                               
|3450 East Miraloma Avenue
Anaheim, California
(Address of principal executive offices) |  | 92806
(Zip code)                              

(714) 414-4000
(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days.

|Yes  [x]        No  [  ]
|------------------------

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

|Yes  [x]        No  [  ]
|------------------------

The number of shares outstanding of the registrants Common Stock, par
value $.01 per share, at May 30, 2003, was 50,193,731.





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TABLE OF CONTENTS



|                          |                                                                                                             |                                                                      |  |  |  |  |  | 
|------------------------- | ----------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- |  |  |  |  |  | 
|                          |                                                                                                             | CONDENSED CONSOLIDATED BALANCE SHEETS                               
|                          |                                                                                                             | CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|                          |                                                                                                             | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                     
|                          |                                                                                                             | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                
|                          | ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF CONSOLIDATED OPERATIONS
|                          | ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                        
|                          | ITEM 4  CONTROLS AND PROCEDURES                                                                           
|PART IIOTHER INFORMATION
|                          | Item 1  Legal Proceedings                                                                                 
|                          | Item 2  Changes in Securities and Use of Proceeds  Not Applicable                                        
|                          | Item 3  Defaults Upon Senior Securities  Not Applicable                                                  
|                          | Item 4  Submission of Matters to a Vote of Security Holders                                               
|                          | Item 5  Other Information  Not Applicable                                                                
|                          | Item 6  Exhibits and Reports on Form 8-K                                                                  
|SIGNATURES               
|CERTIFICATIONS           
|EXHIBIT INDEX            
|EXHIBIT 10.1             
|EXHIBIT 99.1             



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PACIFIC SUNWEAR OF CALIFORNIA, INC.

FORM 10-Q
For the Quarter Ended May 3, 2003

Index

|         |  |                                                                                                                               |  |      
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------- |  | -----
|         |  |                                                                                                                               |  | Page 
|PART I.  |  | FINANCIAL INFORMATION                                                                                                         |  |      
|Item 1.  |  | Condensed Consolidated Financial Statements (unaudited):                                                                      |  |      
|         |  | Condensed Consolidated Balance Sheets as of May 3, 2003 and February 1, 2003                                                  |  | 3    
|         |  | Condensed Consolidated Statements of Income and Comprehensive Income for the
thirteen weeks ended May 3, 2003 and May 4, 2002 |  | 4    
|         |  | Condensed Consolidated Statements of Cash Flows for the thirteen weeks ended
May 3, 2003 and May 4, 2002                      |  | 5    
|         |  | Notes to Condensed Consolidated Financial Statements                                                                          |  | 6-12 
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations                                         |  | 13-22
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                                    |  | 22   
|Item 4   |  | Controls and Procedures                                                                                                       |  | 22   
|PART II. |  | OTHER INFORMATION                                                                                                             |  |      
|Item 1.  |  | Legal Proceedings                                                                                                             |  | 22   
|Item 2.  |  | Changes in Securities and Use of Proceeds                                                                                     |  | 23   
|Item 3.  |  | Defaults Upon Senior Securities                                                                                               |  | 23   
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                                           |  | 23   
|Item 5.  |  | Other Information                                                                                                             |  | 24   
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                                                              |  | 24   
|         |  | SIGNATURE PAGE AND CERTIFICATIONS                                                                                             |  | 25-27

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PACIFIC SUNWEAR OF CALIFORNIA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share amounts)

|                                       |                                                                                                                                    |                              |                                            |                                      |         |         |         |             |         |         |         | 
|-------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- | ---------------------------- | ------------------------------------------ | ------------------------------------ | ------- | ------- | ------- | ----------- | ------- | ------- | ------- | 
|                                       |                                                                                                                                    |                              |                                            |                                      |         | May 3,  |         | February 1,
|                                       |                                                                                                                                    |                              |                                            |                                      |         | 2003    |         | 2003       
|                                       |                                                                                                                                    |                              |                                            |                                      |         |         |         |            
|ASSETS                                 |                                                                                                                                    |                              |                                            |                                      |         |         |         |            
|CURRENT ASSETS:                        |                                                                                                                                    |                              |                                            |                                      |         |         |         |            
|                                       | Cash and cash equivalents                                                                                                          |                              | $                                          | 33,576                               |         |         | $       | 36,438      |        
|                                       | Accounts receivable                                                                                                                |                              |                                            | 1,866                                |         |         |         | 2,916       |        
|                                       | Merchandise inventories                                                                                                            |                              |                                            | 134,883                              |         |         |         | 123,433     |        
|                                       | Prepaid expenses, includes $9,774 and $9,664 of prepaid rent, respectively                                                         |                              |                                            | 15,485                               |         |         |         | 14,871      |        
|                                       | Deferred tax asset                                                                                                                 |                              |                                            | 4,975                                |         |         |         | 4,975       |        
|                                       |                                                                                                                                    |                              |                                            |                                      |         |         |         |            
|                                       |                                                                                                                                    | Total current assets         |                                            |                                      | 190,785 |         |         |             | 182,633 |        
|PROPERTY AND EQUIPMENT:                |                                                                                                                                    |                              |                                            |                                      |         |         |         |            
|                                       | Land                                                                                                                               |                              |                                            | 12,156                               |         |         |         | 12,156      |        
|                                       | Buildings and building improvements                                                                                                |                              |                                            | 26,681                               |         |         |         | 26,680      |        
|                                       | Leasehold improvements                                                                                                             |                              |                                            | 111,421                              |         |         |         | 111,431     |        
|                                       | Furniture, fixtures and equipment                                                                                                  |                              |                                            | 155,630                              |         |         |         | 148,377     |        
|                                       |                                                                                                                                    |                              |                                            |                                      |         |         |         |            
|                                       |                                                                                                                                    | Total property and equipment |                                            |                                      | 305,888 |         |         |             | 298,644 |        
|                                       | Less accumulated depreciation and amortization                                                                                     |                              |                                            | (104,767                             | )       |         |         | (97,131     | )      
|                                       |                                                                                                                                    |                              |                                            |                                      |         |         |         |            
|                                       |                                                                                                                                    | Net property and equipment   |                                            |                                      | 201,121 |         |         |             | 201,513 |        
|OTHER ASSETS:                          |                                                                                                                                    |                              |                                            |                                      |         |         |         |            
|                                       | Goodwill                                                                                                                           |                              |                                            | 6,492                                |         |         |         | 6,492       |        
|                                       | Deferred compensation and other assets                                                                                             |                              |                                            | 8,991                                |         |         |         | 9,105       |        
|                                       |                                                                                                                                    |                              |                                            |                                      |         |         |         |            
|                                       |                                                                                                                                    | Total other assets           |                                            |                                      | 15,483  |         |         |             | 15,597  |        
|                                       |                                                                                                                                    |                              |                                            |                                      |         |         |         |            
|                                       |                                                                                                                                    |                              |                                            | Total assets                         |         | $       | 407,389 |             |         | $       | 399,743 | 
|                                       |                                                                                                                                    |                              |                                            |                                      |         |         |         |            
|                                       |                                                                                                                                    |                              |                                            | LIABILITIES AND SHAREHOLDERS EQUITY |         |         |         |             |         |         |         | 
|CURRENT LIABILITIES:                   |                                                                                                                                    |                              |                                            |                                      |         |         |         |            
|                                       | Line of credit                                                                                                                     |                              | $                                          |                                     |         |         | $       |            |        
|                                       | Current portion of long-term debt                                                                                                  |                              |                                            | 838                                  |         |         |         | 829         |        
|                                       | Current portion of capital lease obligations                                                                                       |                              |                                            | 1,410                                |         |         |         | 1,521       |        
|                                       | Accounts payable                                                                                                                   |                              |                                            | 26,439                               |         |         |         | 28,456      |        
|                                       | Accrued liabilities                                                                                                                |                              |                                            | 33,419                               |         |         |         | 34,522      |        
|                                       | Income taxes payable                                                                                                               |                              |                                            | 3,738                                |         |         |         | 8,000       |        
|                                       |                                                                                                                                    |                              |                                            |                                      |         |         |         |            
|                                       |                                                                                                                                    | Total current liabilities    |                                            |                                      | 65,844  |         |         |             | 73,328  |        
|LONG-TERM LIABILITIES:                 |                                                                                                                                    |                              |                                            |                                      |         |         |         |            
|                                       | Long-term debt                                                                                                                     |                              |                                            | 891                                  |         |         |         | 1,102       |        
|                                       | Long-term capital lease obligations                                                                                                |                              |                                            | 1,987                                |         |         |         | 2,236       |        
|                                       | Deferred compensation                                                                                                              |                              |                                            | 7,649                                |         |         |         | 7,097       |        
|                                       | Deferred rent                                                                                                                      |                              |                                            | 10,932                               |         |         |         | 10,574      |        
|                                       | Deferred tax liability                                                                                                             |                              |                                            | 3,015                                |         |         |         | 3,015       |        
|                                       |                                                                                                                                    |                              |                                            |                                      |         |         |         |            
|                                       |                                                                                                                                    | Total long-term liabilities  |                                            |                                      | 24,474  |         |         |             | 24,024  |        
|Commitments and contingencies (Note 9) |                                                                                                                                    |                              |                                            |                                      |         |         |         |            
|SHAREHOLDERS EQUITY:                  |                                                                                                                                    |                              |                                            |                                      |         |         |         |            
|                                       | Preferred stock, $.01 par value; 5,000,000 shares authorized; none issued and
Outstanding                                          |                              |                                            |                                     |         |         |         |            |        
|                                       | Common stock, $.01 par value; 113,906,250 shares authorized; 49,935,989 and
49,488,764 shares issued and outstanding, respectively |                              |                                            | 499                                  |         |         |         | 495         |        
|                                       | Additional paid-in capital                                                                                                         |                              |                                            | 99,705                               |         |         |         | 93,008      |        
|                                       | Retained earnings                                                                                                                  |                              |                                            | 216,867                              |         |         |         | 208,888     |        
|                                       |                                                                                                                                    |                              |                                            |                                      |         |         |         |            
|                                       |                                                                                                                                    | Total shareholders equity   |                                            |                                      | 317,071 |         |         |             | 302,391 |        
|                                       |                                                                                                                                    |                              |                                            |                                      |         |         |         |            
|                                       |                                                                                                                                    |                              | Total liabilities and shareholders equity |                                      | $       | 407,389 |         |             | $       | 399,743 |        
|                                       |                                                                                                                                    |                              |                                            |                                      |         |         |         |            

See accompanying notes

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PACIFIC SUNWEAR OF CALIFORNIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
(unaudited)
(in thousands, except share and per share amounts)

|                                                                       |  |                              |            |             |  |   |            |  
|---------------------------------------------------------------------- |  | ---------------------------- | ---------- | ----------- |  | - | ---------- | -
|                                                                       |  | For the Thirteen Weeks Ended
|                                                                       |  |                             
|                                                                       |  | May 3, 2003                  |            | May 4, 2002
|                                                                       |  |                              |            |            
|Net sales                                                              |  | $                            | 198,331    |             |  | $ | 161,710    |  
|Cost of goods sold, including buying,
distribution and occupancy
costs |  |                              | 134,476    |             |  |   | 112,544    |  
|                                                                       |  |                              |            |             |  |   |            |  
|Gross margin                                                           |  |                              | 63,855     |             |  |   | 49,166     |  
|Selling, general and administrative expenses                           |  |                              | 50,962     |             |  |   | 43,713     |  
|                                                                       |  |                              |            |             |  |   |            |  
|Operating income                                                       |  |                              | 12,893     |             |  |   | 5,453      |  
|Interest income/(expense), net                                         |  |                              | 61         |             |  |   | (147       | )
|                                                                       |  |                              |            |             |  |   |            |  
|Income before income tax expense                                       |  |                              | 12,954     |             |  |   | 5,306      |  
|Income tax expense                                                     |  |                              | 4,975      |             |  |   | 2,037      |  
|                                                                       |  |                              |            |             |  |   |            |  
|Net income                                                             |  | $                            | 7,979      |             |  | $ | 3,269      |  
|                                                                       |  |                              |            |             |  |   |            |  
|Comprehensive income                                                   |  | $                            | 7,979      |             |  | $ | 3,269      |  
|                                                                       |  |                              |            |             |  |   |            |  
|Net income per share, basic                                            |  | $                            | 0.16       |             |  | $ | 0.07       |  
|                                                                       |  |                              |            |             |  |   |            |  
|Net income per share, diluted                                          |  | $                            | 0.16       |             |  | $ | 0.07       |  
|                                                                       |  |                              |            |             |  |   |            |  
|Weighted average shares outstanding, basic                             |  |                              | 49,683,032 |             |  |   | 49,197,137 |  
|                                                                       |  |                              |            |             |  |   |            |  
|Weighted average shares outstanding, diluted                           |  |                              | 50,981,674 |             |  |   | 50,117,441 |  
|                                                                       |  |                              |            |             |  |   |            |  

See accompanying notes

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PACIFIC SUNWEAR OF CALIFORNIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)

|                                                                                  |                                                     |                                        |                                                     |        |                              |        |             |         |        |         |  
|--------------------------------------------------------------------------------- | --------------------------------------------------- | -------------------------------------- | --------------------------------------------------- | ------ | ---------------------------- | ------ | ----------- | ------- | ------ | ------- | -
|                                                                                  |                                                     |                                        |                                                     |        | For the Thirteen Weeks Ended
|                                                                                  |                                                     |                                        |                                                     |        |                             
|                                                                                  |                                                     |                                        |                                                     |        | May 3, 2003                  |        | May 4, 2002
|                                                                                  |                                                     |                                        |                                                     |        |                              |        |            
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |                                                     |                                        |                                                     |        |                              |        |             |        
|Net income                                                                        |                                                     | $                                      | 7,979                                               |        |                              | $      | 3,269       |        
|Adjustments to reconcile net income to net cash provided by operating
activities: |                                                     |                                        |                                                     |        |                              |        |             |        
|                                                                                  | Depreciation and amortization                       |                                        |                                                     | 8,783  |                              |        |             | 7,823   |       
|                                                                                  | Loss on disposal of equipment                       |                                        |                                                     | 326    |                              |        |             | 417     |       
|                                                                                  | Change in operating assets and liabilities:         |                                        |                                                     |        |                              |        |             |         |       
|                                                                                  |                                                     | Accounts receivable                    |                                                     |        | 1,050                        |        |             |         | (319   | )      
|                                                                                  |                                                     | Merchandise inventories                |                                                     |        | (11,450                      | )      |             |         | (8,915 | )      
|                                                                                  |                                                     | Prepaid expenses                       |                                                     |        | (614                         | )      |             |         | (1,195 | )      
|                                                                                  |                                                     | Deferred compensation and other assets |                                                     |        | 666                          |        |             |         | 136    |        
|                                                                                  |                                                     | Accounts payable                       |                                                     |        | (2,017                       | )      |             |         | (8,088 | )      
|                                                                                  |                                                     | Accrued liabilities                    |                                                     |        | (1,103                       | )      |             |         | 2,985  |        
|                                                                                  |                                                     | Income taxes and deferred taxes        |                                                     |        | (2,986                       | )      |             |         | (7,575 | )      
|                                                                                  |                                                     | Deferred rent                          |                                                     |        | 358                          |        |             |         | 448    |        
|                                                                                  |                                                     |                                        |                                                     |        |                              |        |             |        
|                                                                                  |                                                     |                                        | Net cash provided by/(used in) operating activities |        |                              | 992    |             |         |        | (11,014 | )
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |                                                     |                                        |                                                     |        |                              |        |             |        
|                                                                                  | Investment in property and equipment                |                                        |                                                     | (8,717 | )                            |        |             | (10,618 | )     
|                                                                                  |                                                     |                                        |                                                     |        |                              |        |             |        
|                                                                                  |                                                     |                                        | Net cash used in investing activities               |        |                              | (8,717 | )           |         |        | (10,618 | )
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |                                                     |                                        |                                                     |        |                              |        |             |        
|                                                                                  | Proceeds from exercise of stock options             |                                        |                                                     | 5,425  |                              |        |             | 773     |       
|                                                                                  | Principal payments under capital lease obligations  |                                        |                                                     | (360   | )                            |        |             | (246    | )     
|                                                                                  | Principal payments under long-term debt obligations |                                        |                                                     | (202   | )                            |        |             | (3      | )     
|                                                                                  |                                                     |                                        |                                                     |        |                              |        |             |        
|                                                                                  |                                                     |                                        | Net cash provided by financing activities           |        |                              | 4,863  |             |         |        | 524     |  
|                                                                                  |                                                     |                                        |                                                     |        |                              |        |             |        
|NET DECREASE IN CASH AND CASH EQUIVALENTS:                                        |                                                     |                                        | (2,862                                              | )      |                              |        | (21,108     | )      
|CASH AND CASH EQUIVALENTS, beginning of period                                    |                                                     |                                        | 36,438                                              |        |                              |        | 23,136      |        
|                                                                                  |                                                     |                                        |                                                     |        |                              |        |             |        
|CASH AND CASH EQUIVALENTS, end of period                                          |                                                     | $                                      | 33,576                                              |        |                              | $      | 2,028       |        
|                                                                                  |                                                     |                                        |                                                     |        |                              |        |             |        
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:                                |                                                     |                                        |                                                     |        |                              |        |             |        
|Cash paid during the period for:                                                  |                                                     |                                        |                                                     |        |                              |        |             |        
|                                                                                  | Interest                                            |                                        | $                                                   | 78     |                              |        | $           | 272     |       
|                                                                                  | Income taxes                                        |                                        | $                                                   | 7,961  |                              |        | $           | 9,612   |       

Supplemental disclosures of non-cash transactions (in thousands): During the
thirteen weeks ended May 3, 2003 and May 4, 2002, the Company recorded an
increase to additional paid-in capital of $1,276 and $599, respectively,
related to tax benefits associated with the exercise of non-qualified stock
options. In addition, during the thirteen weeks ended May 4, 2002, the Company
recorded an increase to additional paid-in capital of $291 related to the
issuance of restricted stock to satisfy certain deferred compensation
liabilities.

See accompanying notes

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PACIFIC SUNWEAR OF CALIFORNIA, INC.




NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, all amounts in thousands unless otherwise indicated)


NOTE 1  BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements are unaudited and
have been prepared in accordance with accounting principles generally accepted
in the United States of America (GAAP) for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by GAAP for complete financial statements. The condensed consolidated
financial statements include the accounts of Pacific Sunwear of California,
Inc. and its wholly owned subsidiaries (the Company). All intercompany
transactions have been eliminated in consolidation.

The Companys fiscal year is the 52- or 53-week period ending on the Saturday
closest to January 31. Fiscal 2003 is the 52-week period ending January 31,
2004. Fiscal 2002 was the 52-week period ended February 1, 2003. Fiscal
2001 was the 52-week period ended February 2, 2002.

In the opinion of management, all adjustments consisting only of normal
recurring entries necessary for a fair presentation have been included. The
preparation of the condensed consolidated financial statements in conformity
with GAAP 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 condensed consolidated
financial statements and reported revenues and expenses during the reporting
period. Actual results could differ from these estimates. The results of
operations for the thirteen weeks ended May 3, 2003, are not necessarily
indicative of the results that may be expected for fiscal 2003. For further
information, refer to the financial statements and notes thereto as of and for
the years ended February 1, 2003, February 2, 2002, and February 4, 2001.

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation The consolidated financial statements include the
accounts of Pacific Sunwear of California, Inc. and its wholly owned
subsidiaries, Pacific Sunwear Stores Corp. and ShopPacSun.com Corp. All
intercompany transactions have been eliminated in consolidation.

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

Revenue Recognition  Sales are recognized upon purchase by customers at the
Companys retail store locations or upon shipment for orders received through
the Companys website. The Company has accrued $.5 million to estimate sales
returns by customers based on historical sales return results. Actual return
rates have historically been within managements expectations and the accruals
established. However, in the unlikely event that the actual rate of sales
returns by customers increased significantly, the Companys operational results
could be adversely affected.

Inventory Valuation  Merchandise inventories are stated at the lower of cost
(first-in, first-out method) or market. Cost is determined using the retail
inventory method. At any one time, inventories include items that have been
marked down to managements best estimate of their fair market value.
Management bases the decision to mark down merchandise upon the age of the item
and its current rate of sale. To the extent that management estimates differ
from actual results, additional markdowns may have to be recorded, which could
reduce the Companys gross margins and operating results.

Goodwill and Other Intangible Assets  On February 3, 2002, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill
and Intangible Assets, which revised the

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accounting for purchased goodwill and intangible assets. Under SFAS No. 142,
goodwill and intangible assets with indefinite lives are no longer amortized
but are tested for impairment annually and also in the event of an impairment
indicator. The Company completed the required transitional impairment test and
the annual test and determined that no impairment existed. Any subsequent
impairment losses will be reflected in operating income. With the adoption of
SFAS No. 142, the Company discontinued amortization of goodwill.

The Company evaluates the recoverability of goodwill at least annually based on
a two-step impairment test. The first step compares the fair value of each
reporting unit with its carrying amount, including goodwill. If the carrying
amount exceeds fair value, then the second step of the impairment test is
performed to measure the amount of any impairment loss. Fair value is
determined based on estimated future cash flows, discounted at a rate that
approximates the Companys cost of capital. Such estimates are subject to
change and the Company may be required to recognize impairment losses in the
future.

Other Long-Lived Assets  On February 3, 2002, the Company adopted SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets, which
superseded previous guidance on financial accounting and reporting for the
impairment or disposal of long-lived assets and for segments of a business to
be disposed of. Upon adoption of SFAS No. 144, the Company reviewed long-lived
assets and determined that no impairment existed. Under SFAS No. 144,
long-lived assets, including amortizing intangible assets, will be tested for
impairment whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable.

Corporate Rent Reserve  During fiscal 2001, the Company recorded a $1.4
million charge to accrue for rent expense associated with the Companys former
corporate offices, which remain unused as of May 3, 2003. The current accrual
of $1.3 million is approximately the amount of rent expense for one year,
within which time the Company currently believes a tenant will be identified to
sublease the premises. To the extent managements estimates relating to the
Companys ability to sublease these premises within one year changes,
additional charges may be recorded in the future up to the net remaining
obligation under the lease. As of May 3, 2003, the aggregate net remaining
obligation under this lease was approximately $6.2 million. This amount is
included in the contractual obligations table in Note 9.

Income Taxes  Current income tax expense is the amount of income taxes
expected to be payable for the current year. A deferred income tax asset or
liability is established for the expected future consequences of temporary
differences in the financial reporting and tax bases of assets and liabilities.
The Company considers future taxable income and ongoing prudent and feasible
tax planning in assessing the value of its deferred tax assets. If the Company
determines that it is more likely than not that these assets will not be
realized, the Company would reduce the value of these assets to their expected
realizable value through a valuation allowance, thereby decreasing net income.
Evaluating the value of these assets is necessarily based on the Companys
judgment. If the Company subsequently determined that the deferred tax assets,
which had been written down, would be realized in the future, the value of the
deferred tax assets would be increased, thereby increasing net income in the
period when that determination was made.

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 results of
operations or financial condition of the Company and, from time to time, may
make provisions for potential litigation losses. Depending on the actual
outcome of pending litigation, charges in excess of any provisions could be
recorded in the future which may have an adverse affect on the Companys
operating results (see Note 9).

Stock Split  On December 18, 2002, the Company effected a three-for-two stock
split. All share and per share amounts have been restated to give retroactive
recognition to the stock split in prior periods.

Stock-Based Compensation  The Company accounts for stock-based compensation
in accordance with Accounting Principles Board (APB) Opinion No. 25. In
March 2000, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 44 of APB Opinion No. 25, Accounting for Certain
Transactions Involving Stock Compensation, which, among other things,
addressed accounting

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consequences of a modification that reduces the exercise price of a fixed stock
option award (otherwise known as repricing). The adoption of this
interpretation did not impact the Companys consolidated financial statements.

SFAS No. 123, Accounting for Stock-Based Compensation, requires the
disclosure of pro forma net income and earnings per share. 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, 53.7%
for the four quarters ended May 3, 2003 and 62.7% for the four quarters ended
May 4, 2002; risk-free interest rates, 2.9% for the four quarters ended May 3,
2003 and 4.5% for the four quarters ended May 4, 2002; and no dividends during
the expected term. The Companys calculations are based on a single-option
valuation approach and forfeitures are recognized as they occur. If the
computed fair values of the fiscal 2003 and fiscal 2002 awards had been
amortized to expense over the vesting period of the awards, net income and
earnings per share for the first quarter would have been reduced to the pro
forma amounts indicated below:

|                                                                                                                                            |                               |            |        |        |  |        |        |   |  | 
|------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | ---------- | ------ | ------ |  | ------ | ------ | - |  | 
|                                                                                                                                            |                               |            |        | Fiscal |  | Fiscal
|                                                                                                                                            |                               |            |        | 2003   |  | 2002  
|                                                                                                                                            |                               |            |        |        |  |       
|                                                                                                                                            |                               | Net Income |        |        |  |        |        |   |  | 
|As reported                                                                                                                                 |                               | $          | 7,979  |        |  | $      | 3,269  |  
|Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects |                               |            | (1,499 | )      |  |        | (1,547 | )
|                                                                                                                                            |                               |            |        |        |  |        |        |  
|Pro forma                                                                                                                                   |                               | $          | 6,480  |        |  | $      | 1,722  |  
|                                                                                                                                            | Net Income Per Share, Basic   |            |        |        |  |        |        |   | 
|As reported                                                                                                                                 |                               | $          | 0.16   |        |  | $      | 0.07   |  
|Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects |                               |            | (0.03  | )      |  |        | (0.04  | )
|                                                                                                                                            |                               |            |        |        |  |        |        |  
|Pro forma                                                                                                                                   |                               | $          | 0.13   |        |  | $      | 0.03   |  
|                                                                                                                                            | Net Income Per Share, Diluted |            |        |        |  |        |        |   | 
|As reported                                                                                                                                 |                               | $          | 0.16   |        |  | $      | 0.07   |  
|Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effects |                               |            | (0.03  | )      |  |        | (0.04  | )
|                                                                                                                                            |                               |            |        |        |  |        |        |  
|Pro forma                                                                                                                                   |                               | $          | 0.13   |        |  | $      | 0.03   |  

New Accounting Pronouncements  In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections. SFAS No. 145 amended certain provisions of
SFAS No. 13 and requires the fair value recognition of guarantee obligations
under which the Company may become secondarily liable. The Company adopted
SFAS No. 145 during fiscal 2002. The adoption of SFAS No. 145 resulted in the
recognition of a $.5 million liability related to the Companys guarantee of an
assignees performance under a lease obligation.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, which addresses financial accounting and
reporting for costs associated with exit or disposal activities and supersedes
Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Under EITF Issue 94-3, a liability
for an exit

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cost, as defined in EITF Issue 94-3, was recognized at the date of an entitys
commitment to an exit plan. SFAS No. 146 also establishes that the liability
should initially be measured and recorded at fair value. The Company adopted
the provisions of SFAS No. 146 for exit or disposal activities initiated after
December 31, 2002. The adoption of SFAS No. 146 has not had a material impact
on the Companys financial position or results of operations.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees and Indebtedness of Others. FIN 45 elaborates on the
disclosures to be made by the guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued.
It also requires that a guarantor recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and measurement provisions of this
interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002; while the provisions of the disclosure
requirements are effective for financial statements of interim or annual
reports ending after December 15, 2002. The adoption of FIN 45 has not had a
material impact on the Companys financial position or results of operations
upon adoption.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods for
voluntary transition to SFAS No. 123s fair value method of accounting for
stock-based employee compensation (the fair value method). SFAS No. 148 also
requires disclosure of the effects of an entitys accounting policy with
respect to stock-based employee compensation on reported net income (loss) and
earnings (loss) per share in annual and interim financials statements. The
Company is required to follow the prescribed disclosure format and has provided
the additional disclosures required by SFAS No. 148 for the quarterly period
ended May 3, 2003 in Note 2.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. In general, a variable interest
entity is a corporation, partnership, trust, or any other legal structure used
for business purposes that either (a) does not have equity investors with
voting rights or (b) has equity investors that do not provide sufficient
financial resources for the entity to support its activities. FIN 46 requires
certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after January 31, 2003. The
consolidation requirements apply to older entities in the first fiscal year or
interim period beginning after June 15, 2003. Certain of the disclosure
requirements apply in all financial statements issued after January 31, 2003,
regardless of when the variable interest entity was established. Since the
Company does not currently have any variable interest entities, the adoption of
the provisions of FIN 46 did not have a material impact on the Companys
financial position or results of operations.

Reclassifications  Certain prior year amounts have been reclassified to
conform to the current year presentation.

NOTE 3  CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand and marketable securities with
original maturities of three months or less.

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NOTE 4  DEFERRED COMPENSATION AND OTHER ASSETS

Deferred compensation and other assets consist of the following:

|                                         |  |        |       |             |  |   |       | 
|---------------------------------------- |  | ------ | ----- | ----------- |  | - | ----- | 
|                                         |  | May 3, |       | February 1,
|                                         |  | 2003   |       | 2003       
|                                         |  |        |       |            
|Deferred compensation                    |  | $      | 7,852 |             |  | $ | 7,565 | 
|Long-term computer maintenance contracts |  |        | 938   |             |  |   | 1,359 | 
|Other assets                             |  |        | 201   |             |  |   | 181   | 
|                                         |  |        |       |             |  |   |       | 
|                                         |  | $      | 8,991 |             |  | $ | 9,105 | 
|                                         |  |        |       |             |  |   |       | 

NOTE 5  CREDIT FACILITY

The Company has a credit facility with a bank, which expires March 31, 2004.
The credit facility provides for a $45.0 million line of credit (the Credit
Line) to be used for cash advances, commercial letters of credit and shipside
bonds. Interest on the Credit Line is payable monthly at the banks prime rate
(4.25% at May 3, 2003) or at optional interest rates that are primarily
dependent upon the London Inter-bank Offered Rates for the time period chosen.
The Company did not borrow under the Credit Line at any time during the quarter
ended May 3, 2003. At May 3, 2003, the Company had no borrowings outstanding
under the Credit Line and $22.8 million outstanding in letters of credit. The
credit facility subjects the Company to various restrictive covenants,
including maintenance of certain financial ratios, and prohibits payment of
cash dividends on common stock. At May 3, 2003, the Company was in compliance
with all of the covenants.

NOTE 6  ACCRUED LIABILITIES

Accrued liabilities consist of the following:

|                                                         |  |        |        |             |  |   |        | 
|-------------------------------------------------------- |  | ------ | ------ | ----------- |  | - | ------ | 
|                                                         |  | May 3, |        | February 1,
|                                                         |  | 2003   |        | 2003       
|                                                         |  |        |        |            
|Accrued compensation and benefits                        |  | $      | 12,805 |             |  | $ | 14,420 | 
|Accrued gift cards and store merchandise credits         |  |        | 3,768  |             |  |   | 5,967  | 
|Reserve for store expansion/relocation and closing costs |  |        | 3,352  |             |  |   | 3,653  | 
|Sales tax payable                                        |  |        | 3,161  |             |  |   | 2,290  | 
|Accrued medical insurance costs                          |  |        | 1,671  |             |  |   | 980    | 
|Reserve for corporate rent  former corporate facilities |  |        | 1,252  |             |  |   | 1,263  | 
|Other accrued liabilities                                |  |        | 7,410  |             |  |   | 5,949  | 
|                                                         |  |        |        |             |  |   |        | 
|                                                         |  | $      | 33,419 |             |  | $ | 34,522 | 
|                                                         |  |        |        |             |  |   |        | 

NOTE 7  FEDERAL AND STATE INCOME TAX EXPENSE

The combined federal and state income tax expense was calculated using
estimated effective annual tax rates.

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NOTE 8  NET INCOME PER SHARE, BASIC AND DILUTED

The following table summarizes the computation of EPS (all amounts in thousands
except share and per share amounts):

|                                 |  |             |  |             |  |        |       |  |  |  |            |            |  |           |      |        |  |  |  |  |  |  |  |  |  |   |       |  |  |  |            |           |  |   |      | 
|-------------------------------- |  | ----------- |  | ----------- |  | ------ | ----- |  |  |  | ---------- | ---------- |  | --------- | ---- | ------ |  |  |  |  |  |  |  |  |  | - | ----- |  |  |  | ---------- | --------- |  | - | ---- | 
|First Quarter Ended:             |  | May 3, 2003 |  | May 4, 2002
|                                 |  |             |  |            
|                                 |  |             |  |             |  |        |       |  |  |  |            |            |  | Per Share |      |        |  |  |  |  |  |  |  |  |  |   |       |  |  |  |            | Per Share
|                                 |  | Net Income  |  | Shares      |  | Amount |       |  |  |  |            | Net Income |  | Shares    |      | Amount
|                                 |  |             |  |             |  |        |       |  |  |  |            |            |  |           |      |       
|Basic EPS:                       |  |             |  |             |  |        |       |  |  |  |            |            |  |           |      |        |  |  |  |  |  |  |  |  |  |   |       |  |  |  |            |           |  |   |      | 
|                                 |  |             |  |             |  | $      | 7,979 |  |  |  | 49,683,032 |            |  | $         | 0.16 |        |  |  |  |  |  |  |  |  |  | $ | 3,269 |  |  |  | 49,197,137 |           |  | $ | 0.07 | 
|Diluted EPS:                     |  |             |  |             |  |        |       |  |  |  |            |            |  |           |      |        |  |  |  |  |  |  |  |  |  |   |       |  |  |  |            |           |  |   |      | 
|Effect of dilutive stock options |  |             |  |             |  |        |       |  |  |  | 1,298,642  |            |  |           |      |        |  |  |  |  |  |  |  |  |  |   |       |  |  |  | 920,304    |           |  |   |      | 
|                                 |  |             |  |             |  | $      | 7,979 |  |  |  | 50,981,674 |            |  | $         | 0.16 |        |  |  |  |  |  |  |  |  |  | $ | 3,269 |  |  |  | 50,117,441 |           |  | $ | 0.07 | 

Options to purchase 194,244 and 703,536 shares of common stock in the first
thirteen weeks of each of fiscal 2003 and fiscal 2002, respectively, were not
included in the computation of diluted earnings per common share because the
option exercise price was greater than the average market price of the common
stock.

NOTE 9  COMMITMENTS AND CONTINGENCIES

The Company has minimum annual rental commitments under existing store leases,
the lease for its former corporate offices and distribution center, capital
leases for computer equipment, and other long-term debt obligations for
multi-year computer maintenance contracts. The Company leases all of its
retail store locations under operating leases. The Company leases equipment,
from time to time, under capital leases. In addition, at any time, the Company
is contingently liable for open letters of credit with foreign suppliers of
merchandise. There were $22.8 million of open letters of credit outstanding as
of May 3, 2003. As of May 3, 2003, the Companys future financial commitments
under these arrangements are as follows:

|                            |  |                        |       |             |  |       |       |       |  |           |       |  |  |   |       |  |  |   |       | 
|--------------------------- |  | ---------------------- | ----- | ----------- |  | ----- | ----- | ----- |  | --------- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                            |  | Payments Due by Period
|                            |  |                       
|                            |  |                        |       | Less than 1 |  | 1-3   |       | 3-5   |  | More than
|Contractual Obligations     |  | Total                  |       | year        |  | years |       | years |  | 5 years  
|(in millions)               |  |                        |       |             |  |       |       |       |  |          
|Operating lease obligations |  | $                      | 590.3 |             |  | $     | 75.6  |       |  | $         | 150.4 |  |  | $ | 144.0 |  |  | $ | 220.3 | 
|Capital lease obligations   |  |                        | 3.4   |             |  |       | 1.4   |       |  |           | 2.0   |  |  |   |      |  |  |   |      | 
|Long-term debt obligations  |  |                        | 1.7   |             |  |       | 0.8   |       |  |           | 0.9   |  |  |   |      |  |  |   |      | 
|Letters of credit           |  |                        | 22.8  |             |  |       | 22.8  |       |  |           |      |  |  |   |      |  |  |   |      | 
|                            |  |                        |       |             |  |       |       |       |  |           |       |  |  |   |       |  |  |   |       | 
|Total                       |  | $                      | 618.2 |             |  | $     | 100.6 |       |  | $         | 153.3 |  |  | $ | 144.0 |  |  | $ | 220.3 | 

Litigation  During the first quarter ended May 3, 2003, the Company reached an
agreement, subject to court approval, to settle all claims related to two
lawsuits concerning overtime pay for a total of $4.0 million. The Company had
accrued $3.9 million related to these matters at February 1, 2003. The suits
are Auden v. Pacific Sunwear of California, Inc., which was filed September 17,
2001, and Adams v. Pacific Sunwear of California, Inc., which was filed May 3,
2002. The complaints allege that the Company improperly classified certain
California-based employees as exempt from overtime pay. The Company denies
the allegations underlying the suits, but has agreed to settle the suits to
avoid the cost, distraction and uncertainty associated with protracted
litigation. The court has granted preliminary approval of the settlement and
is expected to conduct a final fairness hearing regarding the settlement in
August 2003. The settlement did not have a material impact on results of
operations for the quarter ended May 3, 2003.

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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 results of operations or financial
condition of the Company.

Indemnities, Commitments, and Guarantees  During its normal course of
business, the Company has made certain indemnities, commitments and guarantees
under which it may be required to make payments in relation to certain
transactions. These indemnities include those given to various lessors in
connection with facility leases for certain claims arising from such facility
or lease and indemnities to directors and officers of the Company to the
maximum extent permitted under the laws of the State of California. The
Company has issued guarantees in the form of standby letters of credit as
security for merchandise shipments from overseas. There were $22.8 million of
these letters of credit outstanding at May 3, 2003. The Company has also
issued a guarantee within a sublease on one of its store locations under which
the Company remains secondarily liable on the sublease should the sublessee
default on its lease payments. The term of the sublease ends December 31,
2014. The Company has recorded $.5 million in accrued liabilities to recognize
the estimated fair value of this guarantee, assuming that another sublessee
would be found within one year should the original sublessee default. The
aggregate rental payments remaining on the master lease agreement at May 3,
2003, were $6.4 million. The duration of these indemnities, commitments and
guarantees varies, and in certain cases, is indefinite. The majority of these
indemnities, commitments and guarantees do not provide for any limitation of
the maximum potential future payments the Company could be obligated to make.
The Company has not recorded any liability for these indemnities, commitments
and guarantees in the accompanying consolidated balance sheets other than as
noted.

The Company maintains a private label credit card through a third party to
promote the PacSun brand image and lifestyle. The third party services the
customer accounts and retains all risk and financial obligation associated with
any outstanding balances on customer accounts. The Company has no financial
obligation and does not provide any guarantee related to any outstanding
balances resulting from the use of these private label credit cards by its
customers.

NOTE 10  RESTRICTED STOCK

During the year ended January 30, 2000, the Company granted a restricted stock
award of 75,000 shares with a purchase price of $0.01 per share to its Chief
Executive Officer. The 75,000 share award vests 25% on each of September 17,
2001, 2002, 2003 and 2004, if, in each instance, certain cumulative earnings per share growth targets have been satisfied.
The Company recorded $229 of deferred compensation expense associated with
this award during the year ended February 4, 2001. During fiscal 2001, the
Company reversed all previously recognized expenses of $317 associated with
this award because the cumulative earnings per share growth targets had not
then been satisfied. No additional expenses have been recognized for this award because the cumulative earnings per share growth
targets had not been met as of February 1, 2003. Under the award agreement,
shares that do not vest at a given vesting date due to the cumulative earnings
per share growth targets not being met remain available for future vesting if
the cumulative earnings per share growth targets are met as of a subsequent
vesting date. It is possible that the cumulative earnings per share growth
target for this award may be achieved in fiscal 2003 and, if that target is
met, the Company will be required to
record compensation expense during the year ended January 31, 2004. If the
target is met, the compensation expense to be recognized will be
based on the closing market price of the Companys stock as of January 31, 2004 minus the purchase
price of $.01 per share. For example, based on the closing
market price of the Companys stock at May 2, 2003 of $22.92, the Company would,
assuming the cumulative earnings per share growth target is met, record $1.4 million in compensation expense related to this award in
the year ended January 31, 2004.

During the year ended February 4, 2001, the Company granted a restricted stock
award of 112,500 shares with a purchase price of $0.01 per share to its Chief
Executive Officer. The 112,500 share award vests 25% on each of March 15,
2002, 2003, 2004 and 2005, if, in each instance, certain cumulative earnings per share growth targets have been satisfied.
The Company recorded $38 of deferred compensation expense associated with this
award during the year ended February 4, 2001. During fiscal 2001, the Company
reversed all previously recognized expenses of $38 associated with this award
because the cumulative earnings per share growth targets had not then been
satisfied. No additional expenses have been recognized for this award because the cumulative earnings per share growth targets had not
been met as of February 1, 2003. Under the award agreement, shares that do not
vest at a given vesting date due to the cumulative earnings per share growth
targets not being met remain available for future vesting if the cumulative
earnings per share growth targets are met as of a subsequent vesting date. It
is possible that the cumulative earnings per share growth target for this award may be achieved in fiscal 2003 and, if that target
is met, the Company will be required to
record compensation expense during the year ended January 31, 2004. If the
target is met, the compensation expense to be recognized will be
based on the closing market price of the Companys stock as of January 31, 2004 minus the purchase
price of $.01 per share. For example, based on
the closing market price of the Companys stock at May 2, 2003 of $22.92, the
Company would, assuming the cumulative earnings per share growth target
is met, record $1.9 million in compensation expense related to
this award in the year ended January 31, 2004.

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ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF CONSOLIDATED OPERATIONS

Critical Accounting Policies

The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
necessarily requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements as well as the
reported revenues and expenses during the reported period. Actual results
could differ from these estimates. The accounting policies that the Company
believes are the most critical to aid in fully understanding and evaluating
reported financial results include the following:

Revenue Recognition Sales are recognized upon purchase by customers at the
Companys retail store locations or upon shipment for orders received through
the Companys website. The Company has accrued $.5 million to estimate sales
returns by customers based on historical sales return results. Actual return
rates have historically been within managements expectations and the reserves
established. However, in the unlikely event that the actual rate of sales
returns by customers increased significantly, the Companys operational results
could be adversely affected.

Inventory Valuation Merchandise inventories are stated at the lower of cost
(first-in, first-out method) or market. Cost is determined using the retail
inventory method. At any one time, inventories include items that have been
marked down to managements best estimate of their fair market value.
Management bases the decision to mark down merchandise upon the age of the item
and its current rate of sale. To the extent that management estimates differ
from actual results, additional markdowns may have to be recorded, which could
reduce the Companys gross margins and operating results.

Long-Lived Assets In the normal course of business, the Company acquires
tangible and intangible assets. The Company periodically evaluates the
recoverability of the carrying amount of its long-lived assets (including
property, plant and equipment, and other intangible assets) whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be fully recoverable. An impairment is assessed when the undiscounted expected
future cash flows derived from an asset or asset group are less than its
carrying amount. Impairments are recognized in operating earnings. The
Company uses its best judgment based on the most current facts and
circumstances surrounding its business when applying these impairment rules to
determine the timing of the impairment test, the undiscounted cash flows used
to assess impairments, and the fair value of a potentially impaired asset.
Changes in assumptions used could have a significant impact on the Companys
assessment of recoverability. Numerous factors, including changes in the
Companys business, industry segment, and global economy, could significantly
impact managements decision to retain, dispose of, or idle certain of its
long-lived assets.

Goodwill and Other Intangible Assets The Company evaluates the recoverability
of goodwill at least annually based on a two-step impairment test. The first
step compares the fair value of each reporting unit with its carrying amount,
including goodwill. If the carrying amount exceeds fair value, then the second
step of the impairment test is performed to measure the amount of any
impairment loss. Fair value is determined based on estimated future cash
flows, discounted at a rate that approximates the Companys cost of capital.
Such estimates are subject to change and the Company may be required to
recognize impairment losses in the future.

Income Taxes Current income tax expense is the amount of income taxes
expected to be payable for the current year. A deferred income tax asset or
liability is established for the expected future consequences of temporary
differences in the financial reporting and tax bases of assets and liabilities.
The Company considers future taxable income and ongoing prudent and feasible
tax planning in assessing the value of its deferred tax assets. If the Company
determines that it is more likely than not that these assets will not be
realized, the Company would reduce the value of these assets to their expected
realizable value through a valuation allowance, thereby decreasing net income.
Evaluating the value of these assets is necessarily based on the Companys
judgment. If the Company subsequently determined that the deferred tax assets,

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which had been written down, would be realized in the future, the value of the
deferred tax assets would be increased, thereby increasing net income in the
period when that determination was made.

Corporate Rent Reserve During fiscal 2001, the Company recorded a $1.4
million charge to accrue for rent expense associated with the Companys former
corporate offices, which remain unused as of May 3, 2003. The current accrual
of $1.3 million is approximately the amount of rent expense for one year,
within which time the Company currently believes a tenant will be identified to
sublease the premises. To the extent managements estimate relating to the
Companys ability to sublease these premises within one year changes,
additional charges may be recorded in the future up to the net remaining
obligation under the lease. As of May 3, 2003, the aggregate net remaining
obligation under this lease was approximately $6.2 million.

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 results of operations or
financial condition of the Company and, from time to time, may make provisions
for potential litigation losses. Depending on the actual outcome of pending
litigation, charges in excess of any provisions could be recorded in the future
that may have an adverse effect on the Companys operating results (see Note 9
to the condensed consolidated financial statements).

Results of Operations

The following table sets forth selected income statement data of the Company
expressed as a percentage of net sales for the periods indicated. The
discussion that follows should be read in conjunction with the table below:

|                                                                        |  |        |       |        |  |  |       |  
|----------------------------------------------------------------------- |  | ------ | ----- | ------ |  |  | ----- | -
|                                                                        |  | May 3, |       | May 4,
|For the thirteen weeks ended:                                           |  | 2003   |       | 2002  
|                                                                        |  |        |       |       
|Net sales                                                               |  |        | 100.0 | %      |  |  | 100.0 | %
|Cost of goods sold (including buying, distribution
and occupancy costs) |  |        | 67.8  |        |  |  | 69.6  |  
|                                                                        |  |        |       |        |  |  |       |  
|Gross margin                                                            |  |        | 32.2  |        |  |  | 30.4  |  
|Selling, general and administrative expenses                            |  |        | 25.7  |        |  |  | 27.0  |  
|                                                                        |  |        |       |        |  |  |       |  
|Operating income                                                        |  |        | 6.5   |        |  |  | 3.4   |  
|Interest income/(expense), net                                          |  |        | 0.0   |        |  |  | (0.1  | )
|                                                                        |  |        |       |        |  |  |       |  
|Income before income tax expense                                        |  |        | 6.5   |        |  |  | 3.3   |  
|Income tax expense                                                      |  |        | 2.5   |        |  |  | 1.3   |  
|                                                                        |  |        |       |        |  |  |       |  
|Net income                                                              |  |        | 4.0   | %      |  |  | 2.0   | %
|                                                                        |  |        |       |        |  |  |       |  

The following table sets forth the Companys number of stores and total square
footage as of the dates indicated:

|                          |  |        |       |        |  |  |       | 
|------------------------- |  | ------ | ----- | ------ |  |  | ----- | 
|                          |  | May 3, |       | May 4,
|                          |  | 2003   |       | 2002  
|                          |  |        |       |       
|PacSun stores             |  |        | 625   |        |  |  | 576   | 
|Outlet stores             |  |        | 74    |        |  |  | 67    | 
|d.e.m.o. stores           |  |        | 109   |        |  |  | 106   | 
|                          |  |        |       |        |  |  |       | 
|Total stores              |  |        | 808   |        |  |  | 749   | 
|Square footage (in 000s) |  |        | 2,721 |        |  |  | 2,446 | 

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The thirteen weeks ended May 3, 2003 (first quarter) as compared to the
thirteen weeks ended May 4, 2002 (first quarter)

Net Sales

Net sales increased to $198.3 million for the first quarter of fiscal 2003 from
$161.7 million for the first quarter of fiscal 2002, an increase of $36.6
million, or 22.6%. Of this $36.6 million increase, $19.6 million was
attributable to a 13.1% increase in comparable store net sales in the first
quarter of fiscal 2003 as compared to the first quarter of fiscal 2002, $13.1
million was attributable to net sales generated by 60 new stores opened in
fiscal 2002 and not yet included in the comparable store base, $3.8 million was
attributable to other non-comparable store net sales, and $1.7 million was
attributable to net sales generated by 18 new stores opened in fiscal 2003 and
not yet included in the comparable store base. Offsetting these increases was
a $1.6 million decrease attributable to the closing of one store during fiscal
2003 and three stores during fiscal 2002. Other non-comparable store net sales
consist primarily of sales from stores that have been expanded or relocated and
not yet included in the comparable store base as well as merchandise sold over
the internet. Of the 13.1% increase in comparable store net sales in the first
quarter of fiscal 2003, PacSun and PacSun Outlet comparable store net sales
increased 10.4% and d.e.m.o. comparable store net sales increased 36.5%. The
increase in comparable store net sales within PacSun and PacSun Outlet was
primarily attributable to increases in comparable store net sales of footwear,
juniors, and accessories. The increase in comparable store net sales within
d.e.m.o. was attributable to increases in comparable store net sales of young
mens, juniors and accessories merchandise. Stores are deemed comparable
stores on the first day of the first month following the one-year anniversary
of their opening or expansion/relocation. Retail prices of the Companys
merchandise remained relatively unchanged in the first quarter of fiscal 2003
compared to the first quarter of fiscal 2002 and had no significant impact on
the net sales increase for the first quarter of fiscal 2003.

Gross Margin

Gross margin, after buying, distribution and occupancy costs, increased to
$63.9 million for the first quarter of fiscal 2003 from $49.2 million for the
first quarter of fiscal 2002, an increase of $14.7 million, or 29.9%. As a
percentage of net sales, gross margin was 32.2% for the first quarter of fiscal
2003 compared to 30.4% for the first quarter of fiscal 2002. Of this 1.8%
increase, occupancy costs decreased 1.7% as a percentage of net sales compared
to the first quarter of fiscal 2002, primarily due to leveraging these costs
over higher total sales, and distribution costs as a percentage of net sales
decreased .3% due to freight and labor efficiencies in the new distribution
center as well as leveraging these costs over higher total sales. Offsetting
these increases was a .2% decrease in net merchandise margins as a percentage
of net sales, primarily due to a higher markdown rate partially offset by a
higher initial markup.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $51.0 million for the
first quarter of fiscal 2003 from $43.7 million for the first quarter of fiscal
2002, an increase of $7.3 million, or 16.7%. These expenses decreased to 25.7%
as a percentage of net sales in the first quarter of fiscal 2003 from 27.0% in
the first quarter of fiscal 2002. Of this 1.3% net decrease as a percentage of
net sales, .7% was due to a decrease in store payroll expenses as a percentage
of net sales and .5% was due to a decrease in depreciation and other store
selling expenses as a percentage of net sales, primarily due to leveraging
these costs over higher total sales, .4% was due to moving the timing and
expense of physical inventories to the second quarter of fiscal 2003 from the
first quarter of fiscal 2002, and .1% was due to a decrease in store closing
expenses. These decreases were partially offset by a .4% increase in general
and administrative expenses, primarily due to an increase in bonus accruals.

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Income Tax Expense

Income tax expense was $5.0 million for the first quarter of fiscal 2003
compared to $2.0 million for the first quarter of fiscal 2002. The effective
income tax rate was 38.4% in each of the first quarters of fiscal 2003 and
fiscal 2002.

Liquidity and Capital Resources

The Company has financed its operations from internally generated cash flow,
short-term and long-term borrowings and equity financing. The Companys
primary capital requirements have been for the construction of new stores,
remodeling, expansion, or relocation of selected stores, financing of
inventories, and, in fiscal 2001, construction of the Companys new corporate
offices and distribution center.

Net cash provided by operating activities for the first quarter of fiscal 2003
was $1.0 million as compared to cash used of $11.0 million for the first
quarter of fiscal 2002. This $12.0 million increase in cash provided was
primarily attributable to an increase in net income of $4.7 million, an
increase in accrued income taxes and deferred income taxes of $4.6 million, a
decrease in inventory, net of accounts payable, of $3.5 million, a decrease in
accounts receivable of $1.4 million, and other items netting to an increase in
cash provided of $1.9 million, offset by a decrease in accrued liabilities of
$4.1 million. Working capital at May 3, 2003, was $124.9 million compared to
$109.3 million at February 1, 2003, an increase of $15.6 million. The increase
in working capital at May 3, 2003, as compared to February 1, 2003, was
primarily attributable to an increase in inventories of $11.5 million, a
decrease in accrued income taxes of $4.3 million, and other items netting to an
increase of $2.6 million, offset by a decrease in cash of $2.8 million. The
increase in inventories was primarily related to increases in inventories in
comparable stores which generated a 13.1% increase in comparable store net
sales as well as opening 17 net new stores and expanding/relocating 5 stores
with over 50% larger average square footage than their previous locations. 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.

Net cash used in investing activities was $8.7 million for property and
equipment for the first quarter of fiscal 2003 compared to $10.6 million for
property and equipment for the first quarter of fiscal 2002. Of the $8.7
million of net cash used for investment in property and equipment in the first
quarter of fiscal 2003, $7.5 million was used for new and existing stores and
$1.2 million was used for other capital expenditures, including computer
hardware and software.

Net cash provided by financing activities for the first quarter of fiscal 2003
was $4.9 million compared to $.5 million for the first quarter of fiscal 2002.
Of the $4.9 million of net cash provided by financing activities in the first
quarter of fiscal 2003, $5.4 million was due to proceeds received from the
exercise of stock options, offset by $.5 million of payments under capital
lease and long-term debt obligations.

The Company has a credit facility with a bank, which expires March 31, 2004.
The credit facility provides for a $45.0 million line of credit (the Credit
Line) to be used for cash advances, commercial letters of credit and shipside
bonds. Interest on the Credit Line is payable monthly at the banks prime rate
(4.25% at May 3, 2003) or at optional interest rates that are primarily
dependant upon the London Inter-bank Offered Rates for the time period chosen.
The Company did not borrow under the Credit Line at any time during the first
quarter ended May 3, 2003. At May 3, 2003, the Company had no borrowings
outstanding under the Credit Line and $22.8 million outstanding in letters of
credit. The credit facility subjects the Company to various restrictive
covenants, including maintenance of certain financial ratios, and prohibits
payment of cash dividends on common stock. At May 3, 2003, the Company was in
compliance with all of the covenants.

The Company has minimum annual rental commitments under existing store leases,
the lease for its former corporate offices and distribution center, capital
leases for computer equipment, and other long-term debt obligations for
multi-year computer maintenance contracts. The Company leases all of its
retail store locations under operating leases. The Company leases equipment,
from time to time, under capital leases.

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In addition, at any time, the Company is contingently liable for open letters
of credit with foreign suppliers of merchandise. There were $22.8 million of
open letters of credit outstanding as of May 3, 2003. As of May 3, 2003, the
Companys future financial commitments under these arrangements are as follows:

|                            |  |                        |       |             |  |       |       |       |  |           |       |  |  |   |       |  |  |   |       | 
|--------------------------- |  | ---------------------- | ----- | ----------- |  | ----- | ----- | ----- |  | --------- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                            |  | Payments Due by Period
|                            |  |                       
|                            |  |                        |       | Less than 1 |  | 1-3   |       | 3-5   |  | More than
|Contractual Obligations     |  | Total                  |       | year        |  | years |       | years |  | 5 years  
|(in millions)               |  |                        |       |             |  |       |       |       |  |          
|Operating lease obligations |  | $                      | 590.3 |             |  | $     | 75.6  |       |  | $         | 150.4 |  |  | $ | 144.0 |  |  | $ | 220.3 | 
|Capital lease obligations   |  |                        | 3.4   |             |  |       | 1.4   |       |  |           | 2.0   |  |  |   |      |  |  |   |      | 
|Long-term debt obligations  |  |                        | 1.7   |             |  |       | 0.8   |       |  |           | 0.9   |  |  |   |      |  |  |   |      | 
|Letters of credit           |  |                        | 22.8  |             |  |       | 22.8  |       |  |           |      |  |  |   |      |  |  |   |      | 
|                            |  |                        |       |             |  |       |       |       |  |           |       |  |  |   |       |  |  |   |       | 
|Total                       |  | $                      | 618.2 |             |  | $     | 100.6 |       |  | $         | 153.3 |  |  | $ | 144.0 |  |  | $ | 220.3 | 

The Company reviews the operating performance of its stores on an ongoing basis
to determine which stores, if any, to expand, relocate or close. Most leases
contain cancellation or kick-out clauses in the Companys favor that relieve
the Company of any future obligation under a lease if specified sales levels
are not achieved by a specified date. The Company closed twelve stores in
fiscal 2002 and anticipates closing approximately seven stores in fiscal 2003.

During the remainder of fiscal 2003, the Company plans to open approximately 66
net new stores, of which approximately 52 will be PacSun stores, approximately
three will be PacSun Outlet stores and approximately 11 will be d.e.m.o.
stores. The Company also plans to expand or relocate approximately 25
additional existing smaller stores during the remainder of fiscal 2003. The
Company estimates that capital expenditures during the remainder of fiscal 2003
will be approximately $37 million, of which approximately $36 million will be
for opening, expanding, and relocating stores and approximately $1 million will
be used for other capital expenditures, including computer hardware and
software.

The Company relies primarily on internally generated cash flows to finance its
operations. In addition, to the extent necessary, the Company relies on its
credit facility to finance operations and provide additional resources for
capital expenditures. Management believes that the Companys working capital,
cash flows from operating activities and credit facility will be sufficient to
meet the Companys operating and capital expenditure requirements for the next
twelve months.

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, cash flows from operations and financial
condition. Any economic downturn that affects the retail industry as a whole
could also adversely affect the Companys business, operating results, cash
flows from operations and financial condition.

A significant decrease in the Companys operating results could adversely
affect the Companys ability to maintain required financial ratios under the
Companys credit facility. Required financial ratios include total liabilities
to tangible net worth ratio, limitations on capital expenditures and
achievement of certain rolling four-quarter EBITDA requirements. If these
financial ratios are not maintained, the bank will have the option to require
immediate repayment of all amounts outstanding under the credit facility. The
most likely result would require the Company to renegotiate certain terms of
the credit agreement, obtain a waiver from the bank, or obtain a new credit
agreement with another bank, which may contain different terms. As of May 3,
2003, the Company had no borrowings outstanding under its credit facility.

New Accounting Pronouncements

Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections  In April 2002, the Financial Accounting
Standards Board (FASB) issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 amended certain provisions of SFAS No. 13 and
requires the fair value recognition of guarantee obligations under which the
Company may become secondarily liable. The

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Company adopted SFAS No. 145 during fiscal 2002. The adoption of SFAS No. 145
resulted in the recognition of a $.5 million liability related to the Companys
guarantee of an assignees performance under a lease obligation (see Note 8 to
the condensed consolidated financial statements).

Accounting for Costs Associated with Exit or Disposal Activities  In June,
2002 the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit
or Disposal Activities, which addresses financial accounting and reporting for
costs associated with exit or disposal activities and supersedes Emerging
Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. Under EITF Issue 94-3, a liability for an exit
cost, as defined in EITF Issue 94-3, was recognized at the date of an entitys
commitment to an exit plan. SFAS No. 146 also establishes that the liability
should initially be measured and recorded at fair value. The Company will
adopt the provisions of SFAS No. 146 for exit or disposal activities that are
initiated after December 31, 2002.

Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees and Indebtedness of Others  In November 2002, the FASB
issued FASB Interpretation No. 45 (FIN 45), Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees and
Indebtedness of Others. FIN 45 elaborates on the disclosures to be made by
the guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also requires that
a guarantor recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. The initial
recognition and measurement provisions of this interpretation are applicable on
a prospective basis to guarantees issued or modified after December 31, 2002;
while the provisions of the disclosure requirements are effective for financial
statements of interim or annual reports ending after December 15, 2002. The
Company adopted the disclosure provisions of FIN 45 during fiscal 2002. The
Company is currently evaluating the recognition provisions of FIN 45 but
expects that they will not have a material adverse impact on the Companys
financial position or results of operations upon adoption.

Accounting for Stock-Based Compensation  Transition and Disclosure  an
amendment of FASB Statement No. 123  In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure.
SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation,
to provide alternative methods for voluntary transition to SFAS No. 123s fair
value method of accounting for stock-based employee compensation (the fair
value method). SFAS No. 148 also requires disclosure of the effects of an
entitys accounting policy with respect to stock-based employee compensation on
reported net income (loss) and earnings (loss) per share in annual and interim
financials statements.

Consolidation of Variable Interest Entities  In January 2003, the FASB issued
FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest
Entities. In general, a variable interest entity is a corporation,
partnership, trust, or any other legal structure used for business purposes
that either (a) does not have equity investors with voting rights or (b) has
equity investors that do not provide sufficient financial resources for the
entity to support its activities. FIN 46 requires certain variable interest
entities to be consolidated by the primary beneficiary of the entity if the
investors do not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other
parties. The consolidation requirements of FIN 46 apply immediately to
variable interest entities created after January 31, 2003. The consolidation
requirements apply to older entities in the first fiscal year or interim period
beginning after June 15, 2003. Certain of the disclosure requirements apply in
all financial statements issued after January 31, 2003,
regardless of when the variable interest entity was established. The Company
does not currently have any variable interest entities and expects that the
adoption of the provisions of FIN 46 will not have a material impact on the
Companys financial position or results of operations.

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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 each of fiscal 2002 and fiscal
2001, excluding sales generated by new and relocated/expanded 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 2002, excluding net sales generated by new and
relocated/expanded stores, approximately 43% of the Companys annual net sales
occurred in the first half of the fiscal year and approximately 57% 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; the timing and
level of markdowns; the timing of store closings, expansions and relocations;
competitive factors; and general economic conditions.

Cautionary Note Regarding Forward-Looking Statements and Risk Factors

This report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 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. The Company is hereby providing cautionary statements identifying
important factors that could cause the Companys actual results to differ
materially from those projected in forward-looking statements of the Company
herein. Any statements that express, or involve discussions as to,
expectations, beliefs, plans, objectives, assumptions, future events or
performance (often, but not always through the use of words or phrases such as
will result, expects to, will continue, anticipates, plans,
intends, estimated, projects and outlook) are not historical facts and
may be forward-looking and, accordingly, such statements involve estimates,
assumptions and uncertainties which could cause actual results to differ
materially from those expressed in the forward-looking statements. All
forward-looking statements included in this report are based on information
available to the Company as of the date hereof, and the Company assumes no
obligation to update or revise any such forward-looking statements to reflect
events or circumstances that occur after such statements are made. Such
uncertainties include, among others, the following factors:

Merchandising/Fashion Sensitivity.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 in a timely manner 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 fashion changes could also have a material adverse effect on the
Companys image with its customers.

Private Label Merchandise.Sales from private label merchandise accounted for
approximately 33% and 34% of net sales in fiscal 2002 and fiscal 2001,
respectively. The Company may increase the percentage of net sales in private
label merchandise in the future, although there can be no assurance that the
Company will be able to achieve increases in private label merchandise sales as
a percentage of net sales. Because the Companys private label merchandise
generally carries higher merchandise margins than its other merchandise, the
Companys failure to anticipate, identify and react in a timely manner to
fashion trends with its private label merchandise, particularly if the
percentage of net sales derived from private label merchandise increases, may
have a material adverse effect on the Companys business, financial condition
and results of operations.

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Fluctuations in Comparable Store Net Sales Results.The Companys comparable
store net sales results have fluctuated significantly in the past on a monthly,
quarterly, and annual 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 changes in fashion trends, changes in the Companys
merchandise mix, calendar shifts of holiday periods, actions by competitors,
weather conditions and general economic conditions. The Companys comparable
store net sales results for any particular fiscal month, fiscal quarter or
fiscal year in the future may decrease. As a result of these or other factors,
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.

Expansion and Management of Growth.The Company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 of
PacSun and d.e.m.o. stores. During fiscal 2003, the Company plans to open
approximately 83 net new stores, of which approximately 65 will be PacSun
stores, approximately five will be PacSun Outlet stores and approximately 13
will be d.e.m.o. stores. The Company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
supplies of merchandise 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 or 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.

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 qualified
personnel in the future 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 and for internet sales are handled from a
single facility in Anaheim, California. Any significant interruption in the
operation of the distribution facility due to natural disasters, accidents,
system failures or other unforeseen causes would have a material adverse effect
on the Companys business, financial condition and results of operations.
There can be no assurance that the Companys new corporate office and
distribution center will be adequate to support the Companys future growth.

Internet Sales. The Companys internet operations are subject to numerous
risks, including unanticipated operating problems, reliance on third party
computer hardware and software providers, system failures and the need to
invest in additional computer systems. There can be no assurance that the
internet operations will achieve sales and profitability levels that justify
the Companys investment therein. The internet operations also involve other
risks that could have a material adverse effect on the Company, including (i)
difficulties with hiring, retention and training of key personnel to conduct
the Companys internet operations, (ii) diversion of sales from PacSun stores,
(iii) rapid technological change, (iv) liability for online content and (v)
risks related to the failure of the computer systems that operate the website
and its related support systems, including computer viruses, telecommunication
failures and electronic break-ins and similar disruptions. In addition, the
internet operations involve risks which are beyond the Companys control that
could have a material adverse effect on the Company, including (i) price
competition involving the items the Company intends to sell, (ii) the entry of
the Companys vendors into the internet business, in direct competition with
the Company, (iii) the level of merchandise returns experienced by the Company,
(iv) governmental regulation, (v) online security breaches, (vi) credit card
fraud and (vii) competition and general economic conditions and economic
conditions specific to the internet, online commerce and the apparel industry.

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Economic Impact of Terrorist Attacks or War/Threat of War.The majority of the
Companys stores are located in regional shopping malls. In response to the
terrorist attacks of September 11, 2001, security has been heightened in public
areas. Any further threat of terrorist attacks or actual terrorist events,
particularly in public areas, could lead to lower customer traffic in regional
shopping malls. In addition, local authorities or mall management could close
regional shopping malls in response to any immediate security concern. For
example, on September 11, 2001, a substantial number of the Companys stores
were closed early due to closure of the malls in response to the terrorist
attacks. Mall closures, as well as lower customer traffic due to security
concerns, could result in decreased sales. Additionally, war or the threat of
war could significantly diminish consumer spending, resulting in decreased
sales for the Company. Decreased sales would have a material adverse effect on
the Companys business, financial condition and results of operations.

Reliance on Foreign Sources of Production.The Company purchases merchandise
directly in foreign markets for its private label brands. In addition, the
Company purchases merchandise from domestic vendors, some of which is
manufactured overseas. The Company does not have any long-term merchandise
supply contracts and its imports are subject to existing or potential duties,
tariffs and quotas. The Company faces competition from other companies for
production facilities and import quota capacity. The Company also faces a
variety of other risks generally associated with doing business in foreign
markets and importing merchandise from abroad, such as: (i) political
instability; (ii) imposition of new legislation relating to import quotas that
may limit the quantity of goods which may be imported into the United States
from countries in a region that the Company does business; (iii) imposition of
duties, taxes, and other charges on imports; and (iv) local business practice
and political issues, including issues relating to compliance with domestic or
international labor standards which may result in adverse publicity. New
initiatives may be proposed that may have an impact on the trading status of
certain countries and may include retaliatory duties or other trade sanctions,
which, if enacted, would increase the cost of products, purchased from
suppliers in countries that the Company does business with. The inability of
the Company to rely on its foreign sources of production due to any of the
factors listed above could have a material adverse effect on the Companys
business, financial condition and results of operations.

Credit Facility Financial Covenants.A significant decrease in the Companys
operating results could adversely affect the Companys ability to maintain
required financial ratios under the Companys credit facility. Required
financial ratios include total liabilities to tangible net worth ratio,
limitations on capital expenditures and achievement of certain rolling
four-quarter EBITDA requirements. If these financial ratios are not
maintained, the bank will have the option to require immediate repayment of all
amounts outstanding under the credit facility. The most likely result would
require the Company to renegotiate certain terms of the credit agreement,
obtain a waiver from the bank, or obtain a new credit agreement with another
bank, which may contain different terms.

Stock Options.A number of publicly traded companies have recently announced
that they will begin expensing stock option grants to employees. In addition,
the FASB and the Securities and Exchange Commission (the Commission) have
indicated that possible rule changes requiring expensing of stock options may
be adopted in the near future. Currently, the Company includes such expenses
on a pro forma basis in the notes to the Companys financial statements in
accordance with accounting principles generally accepted in the United States
of America but does not include stock option expenses in the Companys reported
financial statements. If accounting standards are changed to require the
Company to expense stock options, the Companys reported earnings will decrease
and its stock price could decline.

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 results of operations or
financial condition of the Company. However, managements assessment of the
Companys current litigation could change in light of the discovery of facts
with respect to legal actions pending against the Company not presently known
to the Company or determinations by judges, juries or other finders of fact
which do not accord with managements evaluation of the possible liability or
outcome of such litigation.

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Volatility of Stock Price.The market price of the Companys common stock has
fluctuated substantially in the past and there can be no assurance that the
market price of the common stock will not continue to fluctuate significantly.
Future announcements or management discussions concerning the Company or its
competitors, internet sales results, d.e.m.o. sales and profitability results,
quarterly variations in operating results or comparable store net sales,
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 smaller public
companies for reasons frequently unrelated to the operating performance of the
specific companies.

*************

The Company cautions that the risk factors described above could cause actual
results or outcomes to differ materially from those expressed in any
forward-looking statements of the Company made by or on behalf of the Company.
Further, management cannot assess the impact of each such factor on the
Companys business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.




ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

To the extent the Company borrows under its credit facility, the Company is
exposed to market risk related to changes in interest rates. At May 3, 2003,
there were no borrowings outstanding under the Companys credit facility and
the Company did not borrow under the credit facility at any time during the
first quarter ended May 3, 2003. Based on the weighted average interest rate
of 3.67% on the Companys credit facility during fiscal 2002, if interest rates
on the credit facility were to increase by 10%, and to the extent borrowings
were outstanding, for every $1.0 million outstanding on the Companys credit
facility, net income would be reduced by approximately $3,000 per year. A
discussion of the Companys accounting policies for financial instruments and
further disclosures relating to financial instruments is included in the
Summary of Significant Accounting Policies and Nature of Business in the Notes
to Consolidated Financial Statements in the Companys Form 10-K for the year
ended February 1, 2003. The Company is not a party with respect to derivative
financial instruments.




ITEM 4  CONTROLS AND PROCEDURES

In the 90-day period before the filing of this report, the Chief Executive
Officer and Chief Financial Officer of the Company (collectively, the
certifying officers) have evaluated the effectiveness of the Companys
disclosure controls and procedures (as such term is defined in Rules 13a-14(c)
and 15d-14(c) under the Exchange Act). These disclosure controls and
procedures are designed to ensure that the information required to be disclosed
by the Company in its periodic reports filed with the Commission is recorded,
processed, summarized and reported within the time periods specified by the
Commissions rules and forms, and that the information is communicated to the
certifying officers on a timely basis.

The certifying officers concluded, based on their evaluation, that the
Companys disclosure controls and procedures are effective for the Company,
taking into consideration the size and nature of the Companys business and
operations.

No significant changes in the Companys internal controls or in other factors
were detected that could significantly affect the Companys internal controls
subsequent to the date when the internal controls were evaluated.




PART IIOTHER INFORMATION




Item 1  Legal Proceedings

During the first quarter ended May 3, 2003, the Company reached an agreement,
subject to court approval, to settle all claims related to two lawsuits
concerning overtime pay for a total of $4.0 million. The

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Company had accrued $3.9 million related to these matters at February 1, 2003.
The suits are Auden v. Pacific Sunwear of California, Inc., which was filed
September 17, 2001, and Adams v. Pacific Sunwear of California, Inc., which was
filed May 3, 2002. The complaints allege that the Company improperly
classified certain California-based employees as exempt from overtime pay.
The Company denies the allegations underlying the suits, but has agreed to
settle the suits to avoid the cost, distraction and uncertainty associated with
protracted litigation. The court has granted preliminary approval of the
settlement and is expected to conduct a final fairness hearing regarding the
settlement in August 2003. The settlement did not have a material impact on
results of operations for the quarter ended May 3, 2003.




Item 2  Changes in Securities and Use of Proceeds Not Applicable




Item 3  Defaults Upon Senior Securities Not Applicable




Item 4  Submission of Matters to a Vote of Security Holders

a) The 2003 Annual Meeting of Shareholders of the Company was held on May 21,
2003.

c) At the 2003 Annual Meeting, Sally Frame Kasaks, Thomas Murnane and Peter
Starrett were elected as Class I Directors of the Company for a one-year term
ending in 2004 and Greg H. Weaver, Julius Jensen III and Pearson C. Cummin III
were elected as Class II Directors of the Company for a two-year term ending in
2005.

The shareholders voted on and approved the amended and restated Pacific
Sunwear of California, Inc. 1999 Stock Award Plan which increased the number of
shares authorized to be issued under the plan by 2,500,000, as well as amended
certain other provisions in the plan.

The shareholders voted on and ratified the appointment of Deloitte & Touche
LLP as independent auditors for the Company for the year ending January 31,
2004.

Voting at the 2003 Annual Meeting for the election of directors was as set
forth below. Each of the nominees identified below was elected a director.

|                      |  |            |            |          |  |  |           | 
|--------------------- |  | ---------- | ---------- | -------- |  |  | --------- | 
|                      |  | VOTES CAST |            | VOTES   
|NAME                  |  | FOR        |            | WITHHELD
|                      |  |            |            |         
|Class I Directors:    |  |            |            |          |  |  |           | 
|Sally Frame Kasaks    |  |            | 39,598,106 |          |  |  | 270,768   | 
|Thomas Murnane        |  |            | 39,538,930 |          |  |  | 329,944   | 
|Peter Starrett        |  |            | 39,714,285 |          |  |  | 154,589   | 
|Class II Directors:   |  |            |            |          |  |  |           | 
|Greg H. Weaver        |  |            | 39,488,708 |          |  |  | 380,166   | 
|Julius Jensen III     |  |            | 38,080,922 |          |  |  | 1,787,952 | 
|Pearson C. Cummin III |  |            | 38,781,781 |          |  |  | 1,087,093 | 

With respect to the approval of the amended and restated Pacific Sunwear of
California, Inc. 1999 Stock Award Plan, 22,260,537 votes were cast for
approval, 12,933,729 votes were cast against, 10,165 votes abstained and there
were 14,690,264 broker non-votes.

With respect to the ratification of the appointment of Deloitte & Touche LLP as
independent auditors for the Company for the year ended January 31, 2004,
39,642,879 votes were cast for approval, 219,708 votes were cast against, 6,287
votes abstained and there were 10,025,821 broker non-votes.

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Item 5  Other Information Not Applicable




Item 6  Exhibits and Reports on Form 8-K

|             |  |                                                                                                                                      
|------------ |  | -------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 10.1 |  | Pacific Sunwear of California, Inc. 1999 Stock Award Plan, as amended and restated
March 27, 2003 and further amended on May 21, 2003
|             |  |                                                                                                                                      
|Exhibit 99.1 |  | Written statements of Greg Weaver and Carl Womack pursuant to section 906 of the
Sarbanes-Oxley Act of 2002                          



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                    |  |                                      
|------------------- |  | -------------------------------------
|                    |  | Pacific Sunwear of California, Inc.  
|                    |  | (Registrant)                         
|                    |  |                                      
|Date:  May 30, 2003 |  | /s/    GREG H. WEAVER

Greg H. Weaver
|                    |  | Chairman of the Board                
|                    |  | and Chief Executive Officer          
|                    |  |                                      
|Date:  May 30, 2003 |  | /s/    CARL W. WOMACK

Carl W. Womack
|                    |  | Senior Vice President, Chief         
|                    |  | Financial Officer and Secretary      

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CERTIFICATIONS

I, Greg H. Weaver, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Pacific Sunwear
of California, Inc.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
the Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| | a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the
Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;                                                                                                                        

5. The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):



| | a) |  | all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors
any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        

6. The registrants other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:  May 30, 2003

/s/    GREG H. WEAVER

Greg H. Weaver
Chairman of the Board and Chief Executive Officer

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I, Carl W. Womack, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Pacific Sunwear
of California, Inc.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
the Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| | a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the
Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;                                                                                                                        

5. The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):



| | a) |  | all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors any
material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        

6. The registrants other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:  May 30, 2003

/s/    CARL W. WOMACK

Carl W. Womack
Senior Vice President, Chief Financial Officer and Secretary

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EXHIBIT INDEX

|             |  |                                                                                                                                      
|------------ |  | -------------------------------------------------------------------------------------------------------------------------------------
|Exhibit      |  |                                                                                                                                      
|No.          |  | Description                                                                                                                          
|             |  |                                                                                                                                      
|Exhibit 10.1 |  | Pacific Sunwear of California, Inc. 1999 Stock Award Plan, as amended and restated
March 27, 2003 and further amended on May 21, 2003
|             |  |                                                                                                                                      
|Exhibit 99.1 |  | Written statements of Greg Weaver and Carl Womack pursuant to section 906 of the
Sarbanes-Oxley Act of 2002                          

28