Pier 1's Profits Vanish

Don Hogsett, Staff Staff, September 19, 2005

Fort Worth, Texas — Shelling out more than it's taking in at the register, putting its margins into freefall, with same-store sales declining by almost eight percent, Pier 1 Imports Inc. recorded a second quarter loss of $10.2 million, reversing a prior-year profit of $10.5 million.

Taking a bite out of the bottom line, same-store sales continued their downward slide, falling 7.7 percent. But helped by new store opening, overall sales declined at a slower pace of 3 percent, to $438.6 million from $452.3 million last year.

Doing even more damage to the bottom line, average gross margin skidded down 590 basis points, or 5.9 percentage points, to 31.5 percent from 37.4 percent during the same period a year ago. Measured in absolute dollars, the retailer's buying and occupancy costs rose 6.1 percent.

Putting further downward pressure on results, operating costs moved up 32.1 percent from 30.6 percent last year. At the same time, interest expense more than doubled.

Marvin J. Girouard, chairman and CEO, said performance continues to be challenged “by a slow response from customers to our new merchandising and marketing initiatives. We responded by conservatively managing the business through cost containments, reducing store openings and taking heavy promotional discounts and markdowns to move slower selling merchandise to make room for new arrivals.”

Pier 1 Imports Inc.

Qtr. 8/27 (x000) 2005 2004 % change
a-Second quarter results include interest and investment income of $646,000, up 84 percent from $351,000 during the same quarter a year ago; an income-tax benefit of $10.32 million, compared with year-before tax expense of $6.2 million.
b-Six month results include interest and investment income of $1.8 million, compared with $820,000 during the prior-year period; and an income tax benefit of $14.8 million, compared with a prior year tax payment of $13.1 million.
Sales $438,592 $452,271 -3.0
Oper. income (EBIT) (3,017) (30,435) --
SG&A expenses 32.1% 30.6% --
Net income (10,185)a 10,446a --
Per share (diluted) (0.12) 0.12 --
Average gross margin 31.5% 37.4% --
SG&A expenses 32.1% 30.6% --
Six months
Sales 844,301 884,298 -4.5
Oper. income (EBIT) (9,059) 62,514) --
Net income (22,647)b 22,183b --
Per share (diluted) (0.26) 0.25 --
Average gross margin 33.0% 38.6% --
SG&A expenses 34.1% 31.5% --

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