Thursday, December 4, 1997

Pier 1 Imports Inc.
Phone: 817-878-8000
Price (12/3/97): $22 1/16


A strong housing market has helped home furnishings retailer Pier 1 Imports find booming sales this year, up a stunning 15.9% in same-store comparisons.

For a while, shareholders must have thought they were taking a long walk. But for those who stood fast, Pier 1's stock has paid off as a Double.


Pier 1 Imports is the country's largest specialty retailer of imported decorative home furnishings, gifts, and related items. With more than 700 stores domestically as well as in Puerto Rico, Canada, the United Kingdom, Japan, and Mexico, the Texas-based company imports its wares primarily from Asia.


Income Statement
12-month sales: $998.1 million
12-month income: $56.8 million*
12-month EPS: $1.16*
Profit Margin: 5.7%*
Market Cap: $1520.1 million
(*Excludes extraordinary charges and credits)

Balance Sheet
Cash: $29.8 million
Current Assets: $352.1 million
Current Liabilities: $108.0 million
Long-term Debt: $115.2 million

Price-to-earnings: 19
Price-to-sales: 1.5


Legendary money manager Peter Lynch, who in an earlier life steered to prominence the country's largest mutual fund, Fidelity Magellan, was a regular heavyweight at the annual Barron's Roundtable. Great as he was, some of his picks, like Body Shop and Supercuts, never quite panned out. One of his perennial favorites, Pier 1, almost became another dog in his pound.

Yet this year the company has realized what the faithful have always believed was its potential. With rock-bottom mortgage rates and swelling consumer confidence, people are shopping for new homes to lock in favorable rates. Those who are not moving up are simply refinancing their abodes and using monthly payment savings, in part, to redecorate or load up on housewares.

Pier 1's sales are improving even from the amazing pace the company set earlier in the year. For October, sales at the individual stores were up 17.3%. That was the 25th consecutive month in which the chain showed double-digit gains. The strong showing was also above the 15.9% rise Pier 1 reported going into the month. CEO Clark Johnson's optimism has yet to waver.

"A vibrant housing market, attractive interest rates and high levels of employment in all areas of the country are expected to contribute to a positive Christmas season for Pier 1 Imports," he said when reporting the blowout October sales figures.

The unexpectedly strong unit sales have added up to unexpectedly strong earnings reports. The shares inched higher after every positive monthly report (Pier 1, like most retailers, announces the monthly sales data a few days after the term comes to a close).


So if interest rates bottom out, will Pier 1 peak? It is definitely something to consider.

The recent strength has had many positive effects. Over the summer, Moody's investor services upgraded the company's credit rating and investors have flocked to the fiscally upbeat company.

If there is a reversal of fortune, investors should have some lead-time. If mortgage rates were to head back up, it would probably flood the real estate market and refinancing institutions and, in the short term, play into Pier 1's master plan.

That would obviously be a good time to consider the viability of the company's future success.

-Rick Aristotle Munarriz

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