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Pier 1 Asserts 'Wherewithal' for Turnaround

Specialty retailer Pier 1 Imports is grinding away in turnaround mode, but faced a widened third-quarter loss of 41 cents per share, compared to 11 cents in the year-ago period and was notified by the New York Stock Exchange that it is at risk of being delisted.

In dollars, the Q3 loss was $36.9 million, broadened from the loss of $10.0 million one year ago.

Alex Smith, president and ceo, told analysts on the December earnings call that shoppers at the 1,000-store chain "believe our merchandise quality and in-store experience are significantly better than they were one year ago."

Quarterly sales of $300.9 million were down 19.5% from $374.2 million one year ago. Year-to-date sales of $931.4 million show a 13.4% decrease from $1.075 billion last year.

Comps plunged 17.8% in the quarter, and were down 8.9% for the first nine months.

Cary Turner, evp and cfo, said half the Q3 comp decline was from the fall-off in consumer traffic, the other half from a drop in average ticket. He pointed out that Pier 1 is nevertheless seeing an increase in the shopper conversion rate and units per transaction — in other words, more of the people coming to the store are buying something, but they have, as Smith noted, "gravitated toward the lower price and impulse" sections.

Pitching one of his strong points, Smith told analysts that the stores "are looking really good" in terms of "both merchandise assortment and in-store experience," and that the last 20 weeks have registered a consistently expanding conversion rate.

Smith declared that even in the most pessimistic scenario for 2009, Pier 1 has "the wherewithal to weather" the economic crisis. He noted that 2008, his second year at the helm (he came to Pier 1 from TJX in February 2007), was supposed to have been the break-even year for the retailer, and Pier 1 had been on track for that "until August."

One silver lining of the recessionary storm, Smith said, was the ability for Pier 1 to obtain better prices from its vendors, and thus make progress on gross margins. Another benefit is the willingness of landlords to negotiate lower rents. Pier 1 has had some recent success in that cost area, and the chain has some 200 leases up for renewal soon; execs said they expect to gain further rent reductions.

The NYSE potential-for-delisting notice came as a result of Pier 1 stock trading below $1 for 30 consecutive days. Pier 1 has six months from the date of the notice, Dec. 15, to cure that deficiency. The company emphasized that its "business operations, Securities and Exchange Commission reporting requirements, credit agreement, and other debt obligations are not affected by this notification."

Pier 1 shares tumbled more than 10% on the day's news, on average volume, priced from a high of 42 cents in the morning to the neighborhood of 37 cents in the afternoon.

Pier 1 is No. 28 on the HTT Top 50 Retailing Giants list, with 2007 home textiles sales of $180 million.

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