Debt deal leads to $29.3 million profit for Pier 1 Imports

Sales decline 9.3% to $281.1 million

Larry Thomas -- Furniture Today, June 18, 2009

FORT WORTH, Texas — Buoyed by a one-time gain from repurchasing debt, retailer Pier 1 Imports recorded a profit of $29.3 million in its fiscal first quarter, ended May 30.

The quarterly income, which equals 32 cents per share, reverses a net loss of $32.8 million or 37 cents per share in the same quarter last year.

Sales for the most recent quarter were down 9.3% from the comparable period a year earlier to $281.1 million. The company said the decline was largely due to a reduction in its store count and a same-store sales decline of 7.5%.

The retailer closed 17 stores during the quarter and had 1,073 locations as of May 30. Pier 1 plans to close about 50 more stores this year, and said it is continuing to negotiate rental reductions from many of its landlords.

Its efforts to obtain reduced rents already have resulted in savings of about $9 million, the company said.

The one-time gain of $47.8 million came when a foreign subsidiary of Pier 1 repurchased $79 million worth of the company's convertible senior notes for $27 million in a privately negotiated transaction.

In addition to the gain from the debt repurchase, the retailer recorded a gain of $10.4 million from the settlement of foreign litigation.

In a conference call with securities analysts, Pier 1 President and CEO Alex Smith said sales of outdoor furniture and accessories have been strong and that the retailer's inventory position in the category is good. That is a positive shift from last year, when Pier 1 ended the summer with excess inventory in outdoor and garden, he said.

"We were forced to sell through the inventory at significant discounts in August," Smith said. "This year we've done a much better job, and markdowns in these categories will be significantly lower."

He also said that furniture in general continues to perform well. During the first quarter, the category exceeded 40% of total sales "for the first time in quite a while. We believe furniture sales in the 40% range represents a healthy sales participation for our company," said Smith, adding that the retailer's merchant team has done "a really nice job" developing new assortments that are resonating with customers.