Foolish Forecast: A Rising Tide at Pier 1

Home furnishings retailer Pier 1 Imports (NYSE: PIR) will report third-quarter 2008 results on Thursday.

What analysts say:

• Buy, sell, or waffle? Ten out of 17 analysts recommend a hold. Four of the remaining seven say "buy," and the rest recommend you sell. Our Motley Fool CAPS community is bearish, offering the company only one out of a possible five stars in its ratings.
• Revenue. Revenue is expected to fall another 7% this quarter, to $374.6 million.
• Earnings. Losses, however, are expected to narrow to $0.24 per share, compared with a loss of $0.54 per share last year.

What management says:
By focusing solely on its 1,100 namesake stores and sinking its e-commerce, catalog, and children's operations, Pier 1 figures it can save $150 million a year. Still, it has been a long walk for Pier 1. Same-store sales, for example, fell nearly 3.6% last quarter, on top of a greater than 5.4% decline in the first quarter, which ended in June.

It has been even more of a decline for Pier 1's shares, down by 40% since then. They traded in the mid $20s several years ago, but are trading for less than $4 today. Management has been hampered by the swoon in the housing industry and little chance of a buyout with today's credit crunch. These same sorts of troubles led The Bombay Company to file for bankruptcy protection, and they may be pushing Restoration Hardware (Nasdaq: RSTO) into the arms of Sears Holdings (Nasdaq: SHLD).

What management does:
Driving down costs has begun to pay off for Pier 1. While margins are still off, particularly as it's trimming its size -- and some investors are looking for Pier 1 to be even more aggressive with store closings -- it's clear to see the efforts are paying off. Margins at the operating and net level have finally turned. Says President and CEO Alex Smith, "We know that if we continue to focus on execution of our six business priorities, we will be able to reverse five years of deteriorating trends and return to profitability and beyond."

One Fool says:
Having bought a new home last year (chalk one up for great timing), I've found that Pier 1 has regained the style that made it a strong brand years ago. Of course, it also faces significant competitive pressure from Target (NYSE: TGT), Bed Bath & Beyond (Nasdaq: BBBY), Wal-Mart (NYSE: WMT), and other big-box retailers that went into home furnishings and co-opted the look for which Pier 1 had been famous.

At just 0.18 times sales, Pier 1 looks cheap, but so do many others in its sector. The difference to this Fool is that Pier 1 is following through on a plan. Six months ago, I thought the price was not yet discounted enough to justify picking up shares, but today, I'm willing to take a long look at Pier 1.

Related Foolishness:

• Restoring Sales at Sears
• A Sea of Red at Pier 1
• Pier 1 Cleans House

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