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Pier 1 Performs “Better than Planned” During Q1

Home décor, outdoor home accessories and furniture were among the merchandise category highlights during Pier 1 Imports Inc.’s first quarter – a period which produced results “that were better than we planned, and naturally, we are pleased about this,” noted president and ceo Alex Smith during the retailer’s earnings call last week.

Boosted by a one-time gain from repurchasing debt, Pier 1 reported net income of $29 million, or 32 cents per share, for the period ended May 30, a slight narrowing from a net loss of $33 million, or 37 cents per share, for the same period last year. The operating results improved by $4 million to a loss of $27 million.

Total sales declined 9.4% to $281 million from $310 million in the year-ago quarter – a decrease Pier 1 attributed to a reduction in store count and a drop in comparable store sales of 7.5%, “which can be attributed to the overall economic environment.” Without the effects of Canadian currency conversion rates, the decline in comparable store sales during the fiscal quarter was 6.1%.

While the results were not ideal, “we are, however, more pleased that we can clearly see the positive impact that focusing on our business prowesses is having on the health our company,” Smith added.

Merchandise margins for the quarter were 54% of sales compared to 51% of sales in the same period last year. This increase, the company noted, was primarily the result of reduced supply chain costs and decreased clearance activity.

And store occupancy costs were $67 million compared to $71 million last year – a decline primarily the result of negotiated rental reductions as well as a lower overall store count.

“We feel confident that we can successfully run the business with less rather than more inventory,” Smith said. “We are confident that we can sustain healthy merchandise margins. We know we can manage expenses down without harming the business and, most important of all, we can see our way to growing sales.”

But he cautioned that this “doesn’t mean the business “will move forward in a linear way. I’m sure we’ll make missteps – I’m not sure what they’ll be, I just know that there will be some. And of course, we don’t really know what the economy has to offer. We make judgments based on the data and information that we have, but we don’t really know.”

Turning his attention to bright spots, Smith said the 1,073-unit home specialty chain has seen an increase in average unit retail and average transaction. Traffic is gradually improving and that has positively impacted comp store sales. Merchandise assortments continue to improve and “better reflect what our customers expect from us,” he said.

Examples include the “good response” to this year’s outdoor furniture seasonal assortment. “Sales have been very strong through the spring and that trend continues into the summer,” he said. “And related sales for outdoor accessories are also performing well.”

The trend is a positive shift from last year, when Pier 1 ended the summer with excess inventory in outdoor and garden. “We were forced to sell through the inventory at significant discounts in August,” Smith said. “This year we’ve done a much better job, and markdowns in these categories will be significantly lower.”

Going forward, Pier 1 plans to continue to offer some portion of its outdoor assortment in roughly 10% of its stores all year round.

Furniture in general is “an important part of our business,” he said, and continues to perform well. During the first quarter, the category exceeded 40% of total sales “for the first time in quite a while. We believe furniture sales in the 40% range represents a healthy sales participation for our company,” said Smith, adding that the retailer’s merchant team has done “a really nice job” developing new assortments which are resonating with customers.

“Naturally, we still have plenty of room for improvement. But we’re certainly on the right track,” he summed up.

Other “very strong performers” lately are parts of the home décor assortment and the impulse departments that Pier 1 has developed over the past 18 months.

Seasonal merchandise continues to be “a strength,” as seen this summer as well as in early spring during Easter when assortments were “well received with a good sell-through and low mark downs.”

But Pier 1 had its downsides during the period, Smith admitted.

“Of course, with a negative comp, not every department is doing well. We still have classifications where we are not compelling enough,” he said. “But our buying, planning and analysis teams know what they have to do and we expect to see of the weak areas improve as the year progresses.”

Pier 1 is seeing a significant increase in the percentage of its revenues generated by re-buy skus.

Smith attributed this increase over the past two years to two factors.

“One, clearly the product just keeps getting better, and more of what we buy hits the bull’s eye,” he explained. “Secondly, our purchasing process has improved significantly. We’ve adjusted the time and quantity of initial orders and getting good at predicting how each sku will behave. Reorders are good for Pier 1 Imports and they are also good for our vendors.”

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