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Pier 1 cites less TV, more competition for rough quarter

FORT WORTH, Texas — Pier 1 Imports, Inc. suffered a 39.5percent drop in profits for the third quarter due to stiff competition from low-price megastores such as Target and Wal-Mart, where heavy discounting has taken place, and a lack of television advertising that has left its store floors less trafficked.

Marvin Girouard, the company's chairman and CEO, said during an analysts’ call earlier today that the company has taken a hiatus from television while it revamps all its advertising with the help of outside firms. In October, Pier 1 named two agencies to helm a strategic and creative repositioning of its marketing initiatives. At that time, Deutsch Inc. and OMD Midwest began work on a new marketing campaign to be launched in March 2005.

Until the company feels the benefits of its revamped advertising and merchandising program, Girouard said, he expects "tough comps for the next three or four months" that should let up a few weeks after the March campaign. He said he expects to see improved numbers starting in April through July.

In terms of sku reductions, Girouard said that the company will be reducing its line of furniture offerings from five to four, for example. Overall, Pier 1 plans a 15 to 20 percent sku reduction, he said, to yield better merchandising and stronger item focus.

Girouard said Pier 1’s goal is to have 70 percent inventory turn every year. He said freshness of merchandise is key because the company cannot compete with Target and Wal-Mart on price and is also faced with challenges from Restoration Hardware, Pottery Barn and Crate & Barrel on the high end.

To further generate traffic, Pier 1 is testing an 80-page catalog in 2 markets, including Las Vegas . Heartened by the early results, Girouard said the company will expand the test to six markets. The catalog is intended to help provide incremental sales while also bringing traffic into the stores. It won’t carry exclusive product that is not found in stores.

Profits for the third quarter fell to $19.5 million from $32.2 million last year.

Buoyed by continued expansion, overall sales inched up 1.1 percent, to $487.7 million from $482.4 million a year ago. But the acid-test measure of same-store sales continued to decline, falling 6.3 percent. December comps, the retailer said, are trending in the negative mid-single-digits, and the company is now forecasting a fourth quarter drop in the same range.

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