Pier One Reports Stormy Third Quarter
Don Hogsett -- Home Textiles Today, December 19, 2005
Fort Worth, Texas —With same-store sales still sliding, and margins thinning out as costs climbed higher and stockpiles soared, struggling home accessories retailer Pier 1 Imports Inc. recorded a third-quarter loss of $7.2 million, reversing a prior-year quarterly profit of $19.5 million.
Pier 1 sales declined by 2.4 percent, to $476.2 million from $487.7 million last year. The make-or-break gauge of same-store sales fell even further, dropping off by 6.5 percent.
In addition to falling comps, average gross margin contracted by 280 basis points, or 2.8 percentage points, putting earnings under heavy pressure. Caught between the lower sales and narrowed margins, gross margin dollars fell by 9.3 percent, to $173.4 million from $191.1 million last year.
Operating costs climbed higher as the retailer distributed two national catalogs and beefed up marketing and store payroll costs to build brand awareness and improve service levels. Costs shot up by 420 basis points, or 4.2 percentage points, to 34.1 percent of sales from 29.9 percent during the year-ago quarter. Measured in absolute dollars, costs raced ahead by 11.3 percent, to $162.3 million from $145.8 million a year ago.
Pulling even more dollars away from the bottom line, inventories climbed sharply higher, far outpacing sales. Stockpiles jumped up by 14.7 percent, to $455.3 million from $397.0 million, compared with the 2.4 percent drop in overall sales and the 6.5 percent slide in comps.
Looking for a silver lining, Marvin J. Girouard, chairman and CEO, said, “Although we are disappointed by overall third quarter results, the national distribution of two Pier 1 catalogs this fall improved traffic trends over that period. In addition, we believe catalogs can create a positive brand image for Pier 1 merchandise and have a longer impact on customers than newspaper circulars.”
Assaying the all-important Christmas quarter, Girouard said same-store sales are falling beneath initial projections “due to unpredictable sales trends since the Thanksgiving weekend and the heavy promotional environment.” He said December comps are now expected to be “in the negative mid-single-digit range, unless the second half of the month is significantly better than current trends.”
Pier 1 Imports Inc.
|Qtr. 11/26 (x000)||2005||2004||% change|
a. Third quarter results include $472,000 in interest and investment income, compared with $384,000 during the same period last year.
b. Nine month results include $2.2 million in interest and investment income, compared with $1.2 million last year; and an income tax benefit of $11.8 million, compared with a year-before income tax provision of $24.5 million.
|Oper. income (EBIT)||(3,869)||30,792||—|
|Per share (diluted)||(0.08)||0.22||—|
|Average gross margin||36.4%||39.2%||—|
|Oper. income (EBIT)||451,992||532,099||-15.1|
|Per share (diluted)||(0.34)||0.47||—|
|Average gross margin||34.2%||38.8%||—|
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