At Pier 1, 1Q earnings are stumble, not setback - Pier 1 Imports

DSN Retailing Today, July 7, 2003 by Mike Duff

FORT WORTH. -- Pier 1 Imports earnings declined in the first quarter, but in a conference call Marvin Girouard, the company's chairman and ceo, said the company is in fundamentally good shape with a business model that is working. A cautious consumer, bad weather and tough comparisons played a role weakening the numbers, he said.

Scheduled promotional activities, such as a just-completed clearance promotion, also should boost Pier 1 through the rest of the year. "We are better-positioned today to serve our customers' needs than we have ever been in my 28 years with the company," he said.

In the first quarter ended May 31, Pier 1 posted earnings per share of 21 cents versus 23 cents per diluted share for the year-ago period. Net income fell to $19.1 million from $22.2 million. Sales in the quarter were up 4.8% to $402,712,000, and comparable-store sales slipped 3.6%.

Alan Rifkin, a Lehman Bros. analyst, agreed that Pier 1, which had been rolling for several quarters, remains on track. "From a risk/reward basis we believe Pier 1 shares are compelling," he said in a research note. "Comps should now accelerate."

Although average ticket and sales were up on the first quarter, conversion rates were down and customers shifted buying toward promotional items, a phenomenon that is consistent with the experience of many other home retailers. But the company won't try to buy sales through an extreme increase in promotions, Girouard said. Tabletop was strong in the quarter 99 Cents Only starts Houston expansion with a Texas-sized round of new stores and outdoor and seasonal cushions did well despite unseasonable spring weather. Quartet four-fragrance candle just launched, building on business in other multi-scent products, and candles continue to meet expectations.

In the conference call, the company projected negative comps for June, approximately flat for the second quarter and up slightly for the year. Pier 1 reiterated its earnings guidance for the year. While business has been soft, Girouard.

The company will add 40 Pier One stores in the second quarter as opposed to 30 in the same period last year, as well as dosing or relocating 14 units.

The company also plans to approximately double the size of its 27-store children's furnishings Cargo Kids, adding new markets, including Florida, toward a long-term goal of 300 stores. Cargokids generated $12.2 million last year, with comps up 8.3%, exceeding the Pier 1 average of 4.7%.