Fellow Fool Alyce Lomax and I need to debate Pier 1 Imports (NYSE: PIR). Between Alyce covering the company warnings and me advising not to jump off the pier, there has been little good news to report. Is Pier 1 ready to get it right?
Well, the word from Omaha is that Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) has decided it is the right time to purchase 8 million shares (almost 9%). That's all right!
Although the tired advertising campaign with Kirstie Alley is gone, the colorful, fast-paced ads featuring the Design Doctor Thom Filicia from the hit TV show Queer Eye for the Straight Guy have failed to drive people to the funky, hip, colorful merchandise that makes Pier 1 unique. The company is looking for a new advertising agency and, to its credit, decided to try another campaign before the big Christmas season.
While Pier 1 reports same-store sales declines and guides earnings expectations down, it trades at a multiple to earnings well below competitors Bed Bath & Beyond (Nasdaq: BBBY), Cost Plus (Nasdaq: CPWM), and Williams-Sonoma (NYSE: WSM). With operating margins larger than the average retailer, the company is hardly in trouble.
How's this for being "all right"? Pier 1 is virtually debt-free and has been using excess cash to buy back shares. There is more than $1.75 in cash per share, and the company is selling for 13 times next year's estimated earnings. Oh, and don't overlook the 2.5% dividend that might surely tempt Motley Fool Income Investor readers.
It must feel nice, too, to be part of a company portfolio that includes Coca-Cola (NYSE: KO), Gillette (NYSE: G), and Wells Fargo (NYSE: WFC). Investors must agree because they bid the shares up 13% in early trading.
Oh, and before you read that Warren Buffett is buying, realize it is Berkshire Hathaway that made the announcement. For all we know, Lou Simpson at GEICO made the purchase. Sorry, Lou, you are no lightweight! But because of today's headlines, we want to make sure the news is colored properly here at the Fool.
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Fool contributor W.D. Crotty owns stock in Berkshire Hathaway and Wells Fargo.
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