Pier 1 narrows loss, shares crash
June 19, 2008,
Fort Worth, Texas – Turnaround-bent Pier 1 Imports made substantial progress in reducing its first-quarter loss, but a Wall Street digesting the Pier 1 bid for Cost Plus World Market was anything but enthusiastic and drove the Pier 1 share price down more than 20% this morning.
At that price, the standing bid – of 0.6 share of Pier 1 common stock for 1.0 share of Cost Plus common stock – would equate to $2.94 per share, a drastic reduction since the June 9 offer by Pier 1, which it then estimated would equate to $4 per share.
Pier 1 traded as high as $8.18 on May 1. Cost Plus shares were trading this morning around $3.29, down 6%.
Pier 1 today reported a net loss of $32.8 million, or $0.37 per share, for the first quarter ended May 31 – tightened from the loss of $56.4 million, or $0.64 per share, in the same period one year ago.
Net sales fell 13.0% to $310.0 million from $356.4 million. Comps were down 5.4%, the company said – but stressed that comps in the third month, May, were up 7.5%.
Pier 1 slashed its SG&A costs in the quarter to $109.4 million, or 35.3% of sales, from $132.1 million, or 37.1% of sales – a convincing cut of 220 basis points. The company said the main elements were a reduction of $8.2 million in marketing expense, $4.6 million in store payroll, and $6.9 million in other general administrative costs.
This was enough to reduce the operating loss before interest and taxes (EBIT) to $30.4 million from $55.5 million in the year-ago quarter. Pier 1 has also hacked away at inventory levels, and earlier this month sold its headquarters building – which generated about $100 million in fresh cash.
Alex Smith, president and ceo of the $1.5 billion specialty retailer, told analysts this morning that the 1,116-store chain is on pace to return to operational profitability.
“Customers like what we’re doing,” said Smith, pointing to two merchandising gainers in the quarter: the new impulse item department and the expanded low-ticket department.
Notably, Pier 1 cut its first quarter marketing outlay by 40%, as it plans a major shift of advertising to the second half of 2008.
Smith asked that questions on the proposed Cost Plus acquisition be deferred, and there were none. He said that the “naught-point-six shares” offer was a move by Pier 1 “to create a stronger and more competitive company.”
For what it’s worth – “the company does not make a practice of providing guidance” – Pier 1 projects “a modest net income before special charges for the full year.” But that’s contingent, it said, “upon achieving expected results during the holiday selling period November through January.”