A Sea of Red at Pier 1 Imports (PIR)

A Sea of Red at Pier 1 Imports

By Lawrence A. Rothman, CFA | More Articles
September 20, 2007 | Comments (0)

The long-awaited turnaround at Pier 1 Imports (NYSE: PIR ) seems to be in full force -- if a 360-degree turn counts as a turnaround. In fact, the retailer appears to be spinning itself right into the ground.

The company lost $43.4 million from continuing operations, or $0.49 a share. Granted, that's better than the flood of red ink last year, when Pier 1 lost a whopping $73.1 million, or $0.84 a share. It amazes me that some analysts expect anything positive from the company after what we've seen over the past couple of years. Yet even with reduced expectations, these results were disappointing, compared with the consensus estimate of a $0.44 loss.

It's hard to find anything positive to take away from this quarter. Total sales fell 7%, while same-store sales declined yet again, by 3.6%. And it's not as if Pier 1 is facing tough comparables from last year -- a year ago, same-store sales fell 14.8%. Yet they still managed to fall further this year.

Problems are nothing new to this management team. In an effort to beef up sales, the company revamped its merchandise a couple of years ago, but its modern furniture wasn't distinctive. In fact, it looked a lot like the stuff you'd see at competitors such as Restoration Hardware (Nasdaq: RSTO ) , Williams-Sonoma (NYSE: WSM ) , and privately held Crate and Barrel.

I have to give credit where it is due -- Pier 1 has worked on slashing costs. For the latest quarter, operating costs fell $47 million, to $384.9 million. However, it's going to take a lot more than expense reductions to right this ship. As management itself points out, Pier 1 has faced five straight years of deteriorating trends. The company has yet to show me that it can get the right merchandise into the stores, especially in light of its declining sales. Add a down housing market to the mix, and I don't see results improving anytime soon.

The company has spent more than $53 million to fund its operations in the first half of the year. At this rate, the company doesn't have a lot of time left to figure things out. Reducing expenses is nice, but it's not enough. Given its inability to get the top line growing, Fools should look for a better fit elsewhere.

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