Fiscal 2014 Has Pier 1 Imports Back on Track

Pier 1 Imports, (NYSE: PIR  ) , the unique specialty retailer that was on the verge of bankruptcy just five years ago, is not only a retail success story, but is now a great example of what companies can do when they build upon their strength. On Thursday, April 10Pier 1 Imports announced its fourth quarter and full-year results for FY 2014. Despite not doing as well as it had hoped in the fourth quarter, mostly due to inclement weather, the home furnishings and gifts retailer did produce positive sales growth for the full year. All of these facts make Pier 1 Imports worthy of a closer look by investors; it's a unique retailer capturing a niche part of the retail market.

Details of the release
The fourth quarter, which included the 13 weeks ended March 1, 2014, was greatly affected by inclement weather in many parts of the United States. Investors who have been paying attention to the retail sector are no doubt aware that most retailers have said as much. Pier 1 Imports CEO Alex W. Smith stated that sales were heavily affected by the disruptive cold, snowy weather, which affected "two-thirds of our selling days." Due to these conditions, net income for the quarter dropped to $42.6 million, or $0.41 per diluted share, compared to the previous year when net income for the fourth quarter totaled $61.7 million, with earnings of $0.58 per diluted share. In addition, net sales fell by 6.5%, from $551.6 million in the fourth quarter of FY 2013 to $515.8 million. Furthermore, comparable-store sales decreased 4.6% in the fourth quarter along with gross profit, which fell 4.6%, as well, to 41.6% on account of heavy discounting, sales promotions, and expenses related to fewer sales.

On a brighter note, full-year financial results for FY 2014 saw increased growth in net sales, comparable-store sales, and online retail sales. This growth was made possible thanks to the company introducing new point-of-sales systems in their stores, putting their "Express Request" order program back into play, enhancing their IT capabilities both in stores and online, and by making in-home delivery services available to customers. In addition to opening 27 new stores, Pier 1 Imports redesigned its store portfolio to include more variety and choices for an assortment of products. These developments and changes ultimately allowed Pier 1 Imports to increase total sales by 3.9%, to $1.772 billion, from FY 2013, along with an increase of 2.4% for comparable-store sales.

Net income, however, fell to $107.5 million, or $1.01 per diluted share from FY 2013, when earnings per share totaled $1.20, earning a profit of $129.4 million. Company CEO Alex W. Smith pointed out in the release that FY 2013 included an extra week, which accounted for $29 million. Thus, net income for FY 2014 would have been higher if it also had included a 53rd week. One of Pier 1 Imports' greatest achievements for FY 2014 was increasing e-commerce sales, making up 4% of all sales for the year. The company's game plan is to have online retail sales represent 10% of total sales by the end of 2015.

Forward outlook for FY 2015
Pier 1 Imports executives are excited for the future growth that awaits the company going forward. Company CEO Alex W. Smith exclaimed: "We are highly confident that we have the right plans, infrastructure and talent to drive sales, improve profitability and capture market share in our new fiscal year. We are in the best shape strategically we have ever been, and we are excited to see new and existing customers respond so positively to '1 Pier 1.'" Smith went on to note that all staff in the company's retail stores have been trained and encouraged to explain to customers how to order products through the store's website.

Still trailing the competition on all fronts
While Pier 1 Imports does appear to be recovering from the past few fiscal years, it faces stiff competition from the likes of Bed Bath & Beyond (NASDAQ: BBBY  ) and Williams-Sonoma (NYSE: WSM  ) . Both retailers are trying to grab at the same consumer, and tell similar tales regarding revenue growth and earnings.

Revenue

Company Name

FY 2012

FY 2013

FY 2014

Pier 1 Imports

$1.534 billion

$1.705 billion

$1.772 billion

Bed Bath & Beyond

$9.50 billion

$10.91 billion

$11.50 billion

Williams-Sonoma

$3.721 billion

$4.043 billion

$4.388 billion

Source: Yahoo! FInance

Net Income

Company Name

FY 2012

FY 2013

FY 2014

Pier 1 Imports

$168.94 million

$129.44 million

$107.53 million

Bed Bath & Beyond

$989.5 million

$1.038 billion

$1.022 billion

Williams-Sonoma

$236.9 million

$256.7 million

$278.9 million

Source: Yahoo! Finance

While Pier 1 Imports along with competitors Bed Bath & Beyond and Williams-Sonoma have managed to increase their revenue during the last three fiscal years, Williams-Sonoma is the only one that has been able to consistently increase its earnings year after year. If Pier 1 Imports is serious about turning its company's track record around to further its ongoing expansion through the "1 Pier 1" strategy, it needs to find a way to lower its operating costs to increase overall profitability. It may take a few more years before Pier 1 Imports can experience what Williams-Sonoma currently has. Pier 1 Imports is taking the right steps to increase its sales, but now it needs to focus on how it can increase its profit in the long run.

Foolish takeaway

Pier 1 Imports' about face since the depths of the Great Recession has been impressive, and it remains an amazing turnaround story. That being said, it does face stiff competition in the specialty home retail space, and investors interested in siding with Pier 1 Imports need to weigh these risks. A company that can mount the turnaround that Pier 1 has should not be underestimated, but neither should the intense competition in the home-goods space. On balance, Foolish investors, the facts point to Pier 1 Imports as being a great candidate for closer inspection.

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  • Report this Comment On April 18, 2014, at 7:08 PM, richkleincrisis wrote:

    All this positive outlook stuff came right before news hit that the company placed a pregnant woman on unpaid leave. The company has done very little crisis management to explain its HR policy or to accommodate the California woman who they placed on leave. Pier 1 also nothing to stop the attacks coming its way via social media and beyond. Will be interesting to see how this plays out.

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