Foolish Forecast: Long Walk Off Short Pier 1

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Home furnishings retailer Pier 1 Imports (NYSE: PIR) will report first-quarter 2008 financial results on Thursday, June 21.

What analysts say:

• Buy, sell, or waffle? Analysts are huddled at the end of the pier, with 14 of the 18 market prognosticators saying hold. The other four are evenly divided between buy and sell recommendations. A Goldman Sachs (NYSE: GS) analyst just raised her target price 34% for the home decorator, expressing confidence in new management.
• Revenues. Revenues, though, are expected to fall off the jetty 7% this quarter, declining to $350.7 million.
• Earnings. Losses are expected to narrow to $0.26 per share, a slightly better performance than the $0.32 per share loss recorded the year before.

What management says:
Despite the rosy outlook by the Goldman Sachs analyst, Pier 1 is not an easy play. Same-store sales have been dropping steadily and the fourth quarter saw an 11% decline in comps as more mass market outlets like Target (NYSE: TGT) and Wal-Mart (NYSE: WMT) have begun selling more home furnishings at lower cost. Although it says it will be "more meaningful" to investors, Pier 1 is joining a growing list of retailers that are eschewing monthly comps reports in favor of quarterly numbers. Certainly the monthly data seems a little short-sighted, but it's typically only companies that are showing poor results that are making the move.

What management does:
Recently installed CEO Alex Smith has unveiled plans to keep the Pier from crumbling into the ocean. It's anticipated corporate HQ will be sold off, underperforming stores will be closed (60 have been forecast already), and employees will be fired. In March, Pier 1 announced it will eliminate 175 jobs for a cost savings of $17 million. A smaller, leaner operation offering a wide selection of goods at reasonable prices is in the works. The new strategy is expected to help the company regain its leadership position -- in a niche it once helped define -- and should help reduce the trend of sliding margins.

Margin	02/06	05/06	08/06	11/06	03/07
Gross	33.9%	33.6%	32.9%	31.4%	31.2%
Operating	(1.9%)	(2.9%)	(5.1%)	(7.9%)	(8.4%)
Net	(2.2%)	(2.9%)	(6.6%)	(10.8%)	(14.0%)

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
The housing industry slowdown has hit a lot of home decor retailers hard, and we shouldn't expect Pier 1 to be any different. Both Restoration Hardware (Nasdaq: RSTO) and Motley Fool Income Investor recommendation Tuesday Morning (Nasdaq: TUES) have reported lower sales lately. Even J.C. Penney (NYSE: JCP) found that sales of home goods fell, causing flat same-store sales figures for May. The Goldman analyst, though, thinks Pier 1 may have built itself a little protection by not indicating whether its guidance included shuttering its new catalog. If not, Pier 1 could offer slightly better results.

Lately I've been finding myself shopping at Pier 1 more. While prices may be higher than some place like Wal-Mart, the quality is much better. I dropped a few bills there on a furniture collection for my front porch after spending a day shopping the competition. While I like the product selection offered these days more than in the past, the stock still leaves something to be desired as an investment. If a turnaround is coming, I don't think it's apparent this quarter.

Related Foolishness:

• Sink or Swim at Pier 1
• Is Pier 1 Afloat?
• Pier 1 Still Treading Water

Pier 1 Imports has earned a one-star rating from Motley Fool CAPS, the new investor intelligence community. You can add your voice to the new stock rating service by joining today. It's free!

Fool contributor Rich Duprey owns shares of Wal-Mart, but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. Wal-Mart is a Motley Fool Inside Value recommendation. The Motley Fool has a disclosure policy.