Pier 1 Imports
I do give credit to Pier 1 for facing the music while many retail companies -- among them Sears Holdings
And in Pier 1's case, the continued negative same-store sales performance means that the company is losing money at an accelerating pace. For all of fiscal 2006, the company reported $39 million in losses. For the first six months of fiscal 2007, it has already reported $96 million in losses. At some point, Pier 1 will run the risk of a liquidity crunch that will force the company to sell to a private-equity buyer or file for bankruptcy.
Management recently took steps toward increasing Pier 1's short-term liquidity by suspending dividends. The company also raised $155 million when it recently completed the sale of its proprietary credit card business to JPMorgan Chase
If Pier 1 runs out of liquidity, it could run into liquidation. Yet I don't see the company as worth more dead than alive. It has sold its credit card business, and because it leases most of its properties, I doubt there is much hidden value in its land or buildings. The bulk of the remaining assets are in inventory, fixtures, and leasehold improvements, which will all fetch less than book value.
Even if I did miss any hidden value and Pier 1 enters Chapter 11, it probably won't matter much for equity holders. Whoever owns the company's $184 million in debt will be in the driver's seat. Ask any pre-bankruptcy Kmart shareholder how that worked out for them.
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