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Pier 1 Imports Inc. (NYSE: PIR)

Pier 1 Imports Inc. (PIR) is engaged in specialty retail operations. The Company’s specialty retail operations consist of retail stores operating under the Pier 1 Imports brand, selling a variety of furniture, decorative home furnishings, dining and kitchen goods, epicurean products, bath and bedding accessories, candles and other specialty items for the home. As of February 28, 2009, the Company operated 1,011 Pier 1 Imports stores in the United States and 81 Pier 1 Imports stores in Canada. During the fiscal year ended February 28, 2009 (fiscal 2009), it supplied merchandise and licensed the Pier 1 Imports name to Grupo Sanborns and Sears Puerto Rico, which sold Pier 1 Imports merchandise primarily in a store within a store format in 34 Sears Mexico stores, one Dorian’s store and in seven Sears Puerto Rico stores. The stores consist of freestanding units located near shopping centers or malls and in-line positions in major shopping centers.

The Company was founded in 1970 and is headquartered in Fort Worth, Texas.

Source: http://www.reuters.com/finance/stocks/incomeStatement?stmtType=INC&perType=INT&symbol=PIR.N , https://trading.scottrade.com/quotesresearch/ScottradeResearch.aspx?symbol=PIR , www.pier1.com

Financial Summary

During the second half of fiscal 2009, the U.S. economy significantly deteriorated as a result of the disruption in the credit and financial markets, which created an environment of uncertainty for consumers. During this time of economic turmoil, consumers sacrificed purchases of discretionary items, including PIR’s merchandise, which adversely affected the Company’s sales and financial performance. Management believes that the current economic recession has delayed the Company’s return to profitability and now expects that its turnaround plan will take approximately two years longer than originally anticipated.

For the year, comparable store sales declined 9.2%. The decline in sales was primarily the result of a reduction in traffic and average ticket, offset slightly by increases in conversion rate and units per transaction. Merchandise margins for the year improved slightly to 49.0% of sales. Improvements in the margin over last year were primarily the result of less aggressive liquidation of inventory as compared to fiscal 2008, especially when comparing the first quarter of each year. Despite the slowdown in the economy, PIR anticipates that it will be able to maintain or improve merchandise margins during fiscal 2010 as it began the year with significantly reduced and clean inventory. Changes in the Company’s merchandise assortments have allowed the Company to maintain lower inventory levels without significantly jeopardizing sales.

Selling, general and administrative expenses in fiscal 2009 were lower in dollars than the prior year, primarily as a result of the significant cost savings efforts throughout the year. PIR also made significant changes to its marketing strategy during fiscal 2009. The timing of marketing expenditures was shifted in order to utilize more of the budget in the all important holiday selling period. Most notably, the Company resumed national television advertising on national cable networks during the holiday selling period. The Company will continue to seek out ways to efficiently use its marketing budget through multiple media outlets including television, the Internet, direct mail and print media.

Relatively fixed selling, general and administrative expenses decreased $11.8 million compared to last year. Administrative payroll including bonus decreased $12.1 million resulting primarily from a decrease in home office management bonus, stock option expense and home office payroll expense. Severance, outplacement and other costs decreased $1.7 million primarily as a result of expenses incurred in the prior year related to larger reductions in work force compared to a slightly smaller reduction in the current year. Other selling, general and administrative expenses that do not typically vary with sales decreased $2.0 million primarily as a result of PIR’s continued initiative to manage and control expenses. These decreases were partially offset by $1.7 million in expenses related to the Company’s withdrawn proposal to acquire all of the outstanding common stock shares of Cost Plus Inc. and a $2.2 million gain recorded on the sale of fixed assets in fiscal 2008.

PIR ended the year with total cash of $155.8 million and net availability under its credit line of $84.9 million, for a total liquidity position of $240.7 million. During fiscal 2009, the Company was able to accomplish two feats in particular, which strengthened its liquidity position. In June 2008, the Company sold its corporate headquarters to Chesapeake Energy Company for net proceeds of approximately $102.4 million. The sale had a positive impact on both the balance sheet and the income statement as the cost of leasing space was lower than the carrying costs of the building. In addition, the Company was able to preserve working capital through the significant reduction of its inventory. The Company reduced its inventory position from $411.7 million at the beginning of the year to $316.3 million by year end. The Company accomplished this by reacting quickly to the slowdown in sales, reducing purchases and clearing out excess inventory, especially in the distribution centers. The Company also made changes to its procurement process. The changes included buying inventory much closer to the needed in-store date, and buying smaller initial quantities. This reduction in inventory has the added benefit of allowing the reduction of distribution center space requirements.

Gross profit after related buying and store occupancy costs, expressed as a percentage of sales, was 27.5% in fiscal 2009 compared to 29.1% a year ago. Merchandise margins were 49.0% as a percentage of sales, an increase of 50 basis points over 48.5% in fiscal 2008. Improvements in merchandise margin over last year were primarily the result of less aggressive inventory liquidation activity that occurred during the first quarter of fiscal 2009 as compared to the first quarter of fiscal 2008. Store occupancy costs during fiscal 2009 were $284.1 million or 21.5% of sales, a decrease of $9.1 million and an increase of 210 basis points over store occupancy costs of $293.2 million or 19.4% of sales during fiscal 2008. The decrease of $9.1 million was primarily due to store closures, while the increase as a percentage of sales was the result of the deleveraging of relatively fixed rental costs over a slightly lower sales base in the remaining open stores. As discussed above, the Company is actively evaluating every lease renewal and working to negotiate more favorable occupancy costs in an effort to lower the overall costs of its leased properties.

Selling, general and administrative expenses, including marketing, were $453.5 million or 34.3% of sales in fiscal 2009, a decrease of $34.4 million and an increase 200 basis points from last year’s $487.9 million or 32.3% of sales. Expenses that tend to fluctuate proportionately with sales and number of stores, such as store payroll, marketing, store supplies, and equipment rental, decreased $22.6 million and increased 140 basis points as a percentage of sales from last year. Store payroll, including bonus, decreased $11.8 million partly as a result of planned staffing reductions at the stores and as a result of store closures. Marketing expense decreased $5.0 million and increased 25 basis points as a percentage of sales as a result of the absence of television advertising for most of fiscal 2009, offset slightly by the introduction of a seasonal national cable advertising campaign introduced late in the third quarter of fiscal 2009 running through the early part of the fourth quarter. The timing of marketing expenditures was shifted in order to utilize more of the budget in the all important holiday selling period. Other variable expenses such as store supplies and equipment rental decreased $5.9 million primarily due to efforts to reduce costs.

Source:http://www.pier1.com/SideMenu/IR/AnnualReportsProxyStatements/tabid/89/Default.aspx# https://trading.scottrade.com/quotesresearch/ScottradeResearch.aspx?symbol=PIR

Analyst Consensus

This is the consensus forecast amongst 6 polled investment analysts. Against the Pier 1 Imports Inc company.

The three analysts offering 12-month price targets for PIR have a median target of 3.50, with a high estimate of 6.00 and a low estimate of 3.00. The median estimate represents a -27.84% decrease from the last price of 4.85.

Source: Financial Times.com

Source: http://www.reuters.com/finance/stocks/estimates?symbol=PIR.N

Investment Highlights

The Company reported a net loss of $16 million, or $0.17 per share, for the second quarter, versus a net loss of $30 million, or $0.34 per share, for the same period last year. Operating results improved by $13 million to a loss of $15 million. Total sales for the second quarter declined to $287 million from $320 million in the year-ago quarter. Comparable store sales during the quarter declined 7.6%, which can be attributed to reductions in traffic related to the declines in the overall economic environment. Without the effects of Canadian currency conversion rates, the decline in comparable store sales during the fiscal quarter was 6.9%.

Home furnishings retailer PIR said earlier this week that its sales at established stores rose 9.9% in September and said merchandise margins continue to improve, sending its shares up 12%. PIR stock, which fell to 10 cents a share in March — rose to $4.94 in extended trade from its close of $4.41 on the New York Stock Exchange. To put that seven-month share gain in perspective, a person who invested $10,000 in Pier 1 when shares were at 10 cents would now have an investment worth nearly half a million dollars. After slashing jobs, closing stores, renegotiating rents and tightly managing inventories, PIR is starting to see its business turn.

PIR recently announced that the Company has entered into separate privately negotiated purchases and exchange agreements under which it will retire $69.5 million in aggregate principal of the Company’s outstanding 6.375% Convertible Senior Notes due 2036. Under the exchange agreements for $64.5 million of Existing Notes, holders received $61 million in aggregate principal of new 9% Convertible Senior Notes due 2036. As part of the transaction, the Company also purchased $5.0 million of Existing Notes for cash. Following these transactions, approximately $16.6 million in principal amount of the Existing Notes remain outstanding.

The New Notes are convertible, at the option of the holder at any time on or prior to maturity or certain earlier events, into shares of the Company’s common stock at an initial conversion rate of 399.2016 common shares per $1,000 principal amount, representing a conversion price of $2.5050 per share. The conversion price represents a 20% premium to the 60-day volume weighted average price of shares of the Company’s common stock. Shares of the Company’s common stock, into which the New Notes are convertible, have been reserved for issuance by the Company and listed on the New York Stock Exchange. Holders of the New Notes will have the option to require the Company to purchase the notes on February 15, 2013, and subsequent dates, and in certain other circumstances, at a price equal to 100% of the principal amount of notes to be purchased plus accrued and unpaid interest. Interest on the New Notes will be payable semi-annually and will accrue at the rate of 9%.

PIR announced in August that Catherine David has joined the Company as executive vice president of Merchandising. David has more than 24 years of retail experience; most recently, she served as president and chief operating officer for Kirkland’s Inc., in Jackson, Tennessee. In that role, she led the merchandising, planning, marketing and store teams. Previously, she held vice president and general manager positions with Sears Essentials, Sears Grand, and The Great Indoors; she was also the president of the Burnes Group, a photo frame and accessories supplier. Prior to that, she spent 13 years with the Target Corp., where she held various positions in buying, planning and stores. When she left Target, she was the vice president and general manager of target.direct.

Source: Scottrade.com, Reuters.com, Pier1.com

Technical Analysis

Source: www.stockcharts.com

Moving Average Price Compare

PIR is trading above its 50-day moving average. This is considered to be the sign of a bullish trend. There is added weight to this indication because the moving average is rising and suggests that there has been buying interest in this stock.

MACD

The MACD for PIR currently indicates a strong bullish signal for two reasons. First, the MACD is above the signal line, a 9-day moving average. Second, the MACD is above 0, which implies that the underlying moving averages are trending higher.

Bollinger Bands

PIR’s recent volatility has been greater than normal. This is evidenced by the increased distance between the upper and lower Bollinger Bands. These bands measure volatility using standard deviation and a large width is due to high volatility. Additionally, PIR is trading above its upper Bollinger Band. Relative to recent price action, the stock is currently overextended and due for either a pause or retracement.

Comparative Analysis

Source: Reuter.com, Nasdaq.com

Insider Trading Activity

Net Share Purchase Activity

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