Should You Shop the Pier 1 Sale?

Home goods chain Pier 1 Imports (NYSE: PIR  ) saw shares tumble into the double-digits as the late reporter delivered less-than-rosy sales figures for the recently ended quarter, along with same-store sales growth that, while appealing in isolation, did not hold up to prior quarters' or Wall Street's estimates. Since 2007, the company has done a phenomenal job of coming back from the brink of extinction -- shutting down underperforming stores, improving product mix, and delivering a stronger push into the Web sales arena. On the back of an ongoing rebound and the potential to return to prior growth estimates, is Pier 1 an attractive pick today?

Earnings recap
Second-quarter earnings took a 32% slide for Pier 1, with weaker margins and poor store traffic leading the downward drive. Reversing its previously optimistic full-year guidance of $1.27 per share to $1.32 per share, the company is now expecting earnings per share in the range of $1.23 to $1.29.

CEO Alex Smith specifically mentioned the company's marketing efforts as a culprit for the decreased store traffic. "Our marketing initiatives did not include appropriate messaging around clearance and promotional activity in our stores."

Just one year ago, the company posted a quarterly same-store sales growth of 6.7%. In each of the past three years, same-store sales have averaged growth well above 7%. For the just-ended quarter, Pier 1 saw an increase of only 3.5%, prompting investors and analysts to sell off the stock significantly in last week's trading.

Sales ticked up 7.6% to $395.6 million, while the bottom line slid down to an adjusted $0.19 per share.

Retailers are highly susceptible to market hysteria and short-term weakness, which creates opportunity for the long-term investor. Is Pier1 oversold?

Detour
Smith's ongoing efforts at Pier 1 cannot be discounted, as the executive has nearly flawlessly executed a multiyear turnaround effort. The stock has noticed -- after bottoming out under $0.15 per share in 2009, Pier 1's stock has risen more than 13,500%. Startling as the number is, the stock is not insanely valued today at just under 13.4 times forward earnings. Long-term projections for same-store sales are still above competitors', and most other valuation metrics suggest the company is fair-to-slightly undervalued.

The $2.1 billion company has essentially no debt and should see margins improve over the long term as management continues its focus on online sales and a more global product mix in stores.

If you believe in Smith and Pier 1's continued outperformance (and there remains plenty of reason to do so), last week's sell-off provides a comfortable entry point for an addition to your portfolio.

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