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What happened

In a rare piece of good news, Pier 1 Imports Inc (OTC:PIRRQ) stock jumped after reporting a narrower loss than expected in its second-quarter. As of 12:04 p.m. EDT Thursday, the stock was up 10.2%.

So what

The home-furnishings retailer posted a per-share loss of $0.05 in the quarter, down from a $0.04 profit for the quarter a year ago, but a penny better than estimates of -$0.06.

It was an ugly quarter on the top line as revenue fell 6.7% to $405.8 million, in line with estimates, and same-store sales dropped 4.3% continuing a long slide.

CEO Alex Smith said, "Our top-line results reflect soft store traffic levels throughout the second quarter, most notably in July. To drive our business, we have many initiatives currently under way which include: our return to television advertising; merchandise refreshes, including the arrival of new and fall seasonal goods." Smith did add that trends improved in August and September.

Now what

Thursday's stock's surge could be called a relief rally, perhaps, but the cause for the gains is puzzling considering the retailer also lowered its guidance. The rally may be best explained by how far shares have fallen and that an activist investor recently took a stake in the company. The outgoing CEO may also open up an opportunity for a new direction.

For the fiscal year, management now expects a revenue decline of 4% to 6%, with comparable sales down 2% to 4%, and full-year EPS of $0.24 to $0.32 as the second half of the year tends to be stronger. That's still down from $0.46 a year ago.

Unless sales trends turn around soon, investors could see the dividend get slashed as the payout is no longer sustainable at the company's current profit level.

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