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Pier 1 earnings fall 22% in 2Q

Margins squeezed by bargain-hunting consumers
Fort Worth, TX — With consumers looking for bargains and shunning full-price items, and hobbled by thinning margins and rising costs, second-quarter profits at Pier 1 Imports stumbled by 22.2 percent, falling to $13.8 million from $17.7 million.

With Americans on the hunt for marked-down items, same-store sales backed off by 0.2 percent, putting pressure on margins and costs.

But driven by continued expansion at the decorative home furnishings and gift shops, overall sales still managed to climb by 5.7 percent, to $357.2 million from $338.0 million a year ago.

"As in the first quarter, our customers were shopping for value as we once again experienced higher promotional sales and lower average transactions during the quarter," said chairman and ceo Maurice Girouard.

Markdowns and promotions put margins and profits both under pressure, with average gross margin narrowing by 160 basis points, to 38.5 percent from 40.1 percent last year. But given the higher overall level of sales, gross margin dollars eked out a slender 1.4 percent increase.

Operating costs increased by 80 basis points during the period, to 29.4 percent of sales from 28.6 percent a year ago. Measured in absolute dollars, costs advanced by 8.6 percent, well ahead of the gain in sales, to $105.1 million from $96.8 million a year ago, an increase of $8.4 million.

Easing some of the pressure on the bottom line, interest expense was slashed by almost a third, 29.3 percent, to $448,000 from $634,000 the preceding year. Enabling the cut in interest costs, Pier 1 reduced its long-term debt by 23.1 percent, over the past 12 months, to $25 million from $32.5 million.

In another big savings, the retailer continued to work down its stockpiles, with inventories coming down by 3.3 percent, to $300.7 million from $310.9 million last year.

Raising a question mark about the tone of business for the balance of the year, Girouard said terrorist attacks on the World Trade Center and the Pentagon "further creates uncertainty in the minds of consumers. Given the current environment, we think it is premature to lower earnings estimates until we develop sales and traffic patterns in the next few weeks. When September sales are announced on Oct. 11th, we will provide revised sales and earnings forecasts for the second half of fiscal year 2002."

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