Management says that Demo is still a viable concept overall, and the company will test a new prototype of the stores. The retailer will convert about 20 to 25 of its existing units into the new concept by the end of the year.

Pacific Sunwear's portfolio-wide same-store sales in January fell 7.7% year over year, with Demo units recording a 9.5% drop. The company's 849 namesake stores posted a 7.3% fall on their own. Product categories that were especially hit hard include men's footwear and men's and women's apparel.

As a result of the sales drop, management has now lowered its fourth-quarter earnings guidance to between 36 cents and 38 cents per share. It had previously forecast Q4 earnings to come in from 45 cents to 50 cents.