Alas, ye olde "beat by a penny" trick doesn't always work. Shares of Pier 1 Imports (NYSE:PIR) took a 5% nosedive this morning after the company reported earnings that bested the street's estimates, but still represented a drop from last year's results.

It's been a tough year for the retailer. Back in January, the firm leaned on a lame bad weather excuse for sinking comps, though other retail outfits had a banner month. Before that, a crummy third quarter spooked investors.

Pier 1's problem is this: Even though sales have increased a bit, the firm has failed to carry the bigger numbers through to the bottom line. For the fourth quarter, a 6.5% bump in sales yielded a 3.5% drop in earning per share (EPS), to $0.55 per stub -- after accounting for a onetime charge. For the full year, the firm booked a similar 6.5% rise in revenues, but earnings sank 3.7% to $1.31 per share -- again, post-charge.

So, what's keeping the money from trickling down? Gross margins slimmed, and SG&A expenses increased slightly as a percentage of revenues. Better sales at existing stores might help tame those numbers, which is why management is looking to its new advertising campaign to attract customers. Finally gone are those hideous ads featuring Kirstie Alley, now replaced by commercials featuring Thom Filicia of hit TV show Queer Eye for the Straight Guy.

Management hopes for earnings around $1.48 next year, or 13% EPS growth. At $23 per share, Pier 1 trades at a forward P/E of roughly 16. That might look like a good deal, especially considering the P/Es of competitors Bed Bath & Beyond (NASDAQ:BBBY) and Williams-Sonoma (NYSE:WSM). However, since Pier 1 continues to plow so much back into marginally accretive capital expenditures, it's worthwhile to take a peek at free cash flow (FCF).

The results show FCF of $56 million for the year -- almost half of which was paid out in dividends. That yields an enterprise value-to-free cash flow ratio of near 33. That number is a lot pricier than the market's overall multiple of 23. Unless Pier 1 can get better sales increases from its expansion, it's no real bargain.

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Fool contributor Seth Jayson owns no stake in any company mentioned above. View his Fool profile here.