Pier 1 posts $73.1M loss
Merchandising shifts haven't worked yet
By Clint Engel -- Furniture Today, September 17, 2006
Fort Worth, Texas — Retailer Pier 1 Imports lost $73.1 million in its second quarter as it continued to struggle with soft sales amid major shifts in its merchandising strategy.
The loss for the quarter ended Aug. 26 included nearly $38 million in unusual charges for an accounting change and other one-time events.
Without the charges, the Top 100 home furnishings specialist said it would have posted a loss of $29.3 million, or 34 cents per share, compared with a loss of $6.4 million, or 7 cents per share, from continuing operations in the same period last year. Including discontinued operations, the net loss in last year's second quarter was $10.2 million.
Wall Street analysts on average were looking for a loss of 28 cents per share.
Sales for the 1,268-store chain declined 12.5% from the comparable period a year ago to $370.7 million, with same-store sales falling 14.8%.
For the first six months of its fiscal year, Pier 1's net loss was $96.2 million, compared with a $22.6 million loss in the previous year's first half.
"Although we were well under way with our turnaround strategy, we are disappointed to report a significant loss for the second quarter," said Pier 1 Chairman and CEO Marvin Girouard. He said business was soft in June and July and picked up slightly in August, but not enough to overcome the company's fixed costs.
"We expect to do better over the next few months through the critical fall and holiday selling season," he said. He noted that the Top 100 company has made dramatic changes in store presentations and assortment "to present new, eclectic and differentiated collections that offer better quality products, compelling visual presentations and a superior shopping experience in an effort to attract new customers."
In a conference call with the investment community, Girouard said Pier 1 may have pushed the envelope too far earlier this year when it moved into more contemporary home furnishings and a less cluttered store presentation. It may have tried to reach too high up the price spectrum, too.
He said the modern Loft 21 collection that Pier 1 introduced this spring served the purpose of attracting new customers. But the merchandising changes also were criticized by some, and Girouard admitted they may have been too severe.
"We tried it and felt we went a little too far, so we're pulling it back," he said.
In the weeks heading into the fall and holiday selling season, Pier 1 will get more promotional — aiming to settle in somewhere above the Wal-Marts and Targets but below Pottery Barn, Restoration Hardware and Neiman Marcus. There will be a big push in television, direct mail catalogs and Internet marketing, he said.
Pier 1 also will deemphasize large furniture items for the period, focusing its marketing message more on gifts, tabletop and other small items.
In the conference call, the company said it now expects to close 65 to 70 stores this year — up from the 50 to 55 stores it said it would close earlier — and will open the first Pier 1 Kids store-within-a-store concept in a handful of its regular Pier 1 stores later this year.
The second quarter results included a non-cash charge of $24.6 million to establish a valuation allowance against net deferred income tax assets for prior years. Other one-time items included a pre-tax $4.6 million charge for a labor litigation settlement; $3.1 million in non-cash store-level asset impairment charges; a $2.7 million charge for relocation and integration of its Pier 1 Kids headquarter and warehouse into Pier 1 full-line facilities, and a $2.7 million non-cash charges for stock-based compensation expenses.
| Pier 1 Imports | |||
|---|---|---|---|
| Earnings per share are fully diluted, and all figures in parentheses are losses or declines. | |||
| Quarter ended 8/26 | 2006 | 2005 | Change |
| (a) Includes a $7.4 million income tax benefit and a $3.8 million net loss from discontinued operations. (b) Based on average shares outstanding of 87.3 million in the 2006 quarter, 86.5 million in the 2005 quarter, 87.2 million in the 2006 six months and 86.4 million in the 2005 six months. (c) Includes income tax benefits of $570,000 in the 2006 six months and $14.8 million in the 2005 six months and net losses from discontinued operations of $407,000 in the 2006 six months and $7.8 million in the 2005 six months. | |||
| Sales | $370,698,000 | $423,675,000 | (12.5%) |
| Operating income | (47,648,000) | 138,000 | — |
| Net income | (73,059,000) | (a)(10,185,000) | — |
| Earnings per share (b) | (0.84) | (0.12) | — |
| 6 months ended 8/26 | 2006 | 2005 | Change |
| Sales | $746,790,000 | $813,989,000 | (8.3%) |
| Operating income | (67,979,000) | (2,566,000) | — |
| Net income (c) | (96,231,000) | (22,647,000) | — |
| Earnings per share (b) | (1.10) | (0.26) | — |
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