As Homeowners Feather Their Nests, These Retailers Hope to Strengthen Their Bottom Lineshttp://www.fool.com/investing/general/2014/01/03/as-homeowners-feather-their-nests-pier-1-imports-b.aspx Dee Power
January 3, 2014
Redecorating a bathroom with towels, soaps, and silk flowers costs a lot less than ripping out cabinets and plumbing. Changing the color scheme of the living room with new pillows, lighting, candles, and accessories gives a bright fresh look without emptying the bank account. That's exactly the business model behind Pier 1 Imports (NYSE: PIR), Bed Bath & Beyond (NASDAQ: BBBY), and Williams-Sonoma (NYSE: WSM). The question, is which one is doing the best job of enticing shoppers to part with their hard-earned money?
Peering into Pier 1 Imports
The results for the third quarter ending Nov. 30, 2013 include the Thanksgiving weekend, one of the biggest shopping weekends of the year. Comparable-store sales increased 6.9% from the third quarter of 2012, based on a higher conversion rate and increased sales per customer. Total sales increased to $465.5 million, a 9.6% increase. The gross margin was $202.2 million, or 43.4% of sales, which deteriorated from 43.9% of sales for the third quarter of 2012. This was mitigated by a 70 basis point decrease in selling and administrative costs which came in at $149.2 million, or 32.1% as a percentage of sales.
So, the company ended the third quarter with operating income of $43.1 million, an improvement of $4.3 million dollars, or 11%. How does Pier 1 Imports stack up against its competitors?
Behind competitor door number one
Net sales for the second quarter ending Aug. 31, 2013 were $2.8 billion, an improvement of 8.9% from the previous year's quarter. Same-store sales increased by only 3.7%. Cost of sales increased 50 basis points in 2013 but selling, general, and administrative expense fell by 10 basis points, which left the operating profit at $389 million for the quarter, an improvement of slightly over $24 million.
It all started around the kitchen table
Almost half -- 48.7% -- of sales are generated through the internet and the company's catalogs. In comparison, Pier 1 only generated 4% of its third-quarter sales through the internet. Third quarter sales for Williams-Sonoma as a company improved 11% to $1.05 billion. The West Elm brand led the increase at 22.2% followed by PBTeen at 16.7%, and the Pottery Barn brand had a sales increase of 8.4%. The Williams-Sonoma brand only increased its sales by 1.4%. Gross margin declined 40 basis points to 38.6%, 4.8 percentage points below that of Pier 1. Selling, general, and administrative expenses were $313 million, or 29.8% of revenues. Operating profit landed at $92.5 million.
What's interesting is that if 48.7% of sales take place through the Internet or catalog it would seem that selling, general, and administrative expenses should be considerably lower as a percent of revenue than it is for Pier 1 Imports. It's not--selling, general, and administrative expenses for Williams-Sonoma accounted for 29.8% of sales, while it's 32.1% for Pier 1.