Another stormy sea of disappointing sales traversed, troubled retailer Pier 1 (NYSE:PIR) once again arrives in port tomorrow morning to offload a shipment of earnings news.

What analysts say:

  • Buy, sell, or waffle? Twenty-one analysts track Pier 1, rating it a palindromic four buys, 13 holds, and four sells.
  • Revenues. Sales are expected to be off 5% year over year at $384.2 million.
  • Earnings. Losses are expected to deepen to $0.26 per share.

What management says:
Two weeks ago, Pier 1 was pleased to report that, for once, analysts were too pessimistic about its results. Sales, said Pier 1, will be down just 3.6% for the quarter (although the more important metric of same-store-sales will look worse at negative 6.6%.) Unfortunately, that was the good news. The bad news is that, as the quarter progressed, things got worse. Comps held firm (if that's the right word to use) in the quarter's final month of May at negative 6.6%, while overall sales slipped and declined 4.3% year over year. CEO Marvin Girouard put the best face possible on the quarter by mentioning that sales picked up a bit in the several days following the firm's mailing of its summer catalog in May (which makes you wonder how bad that bad month would have been without the catalog). He also noted hopefully that "average ticket sales per transaction for the month were positive" -- so it sounds like what we have here is significantly fewer shoppers spending a bit more money each.

What management does:
Pier 1's shares are down 44% in 52 weeks. It takes more than weakening sales to do that to a stock. In Pier 1's case, it also took an average of 600 basis points in lost gross margin over the last 18 months, and a color change in operating margins from black to red.

Margins
%

11/04

2/05

5/05

8/05

11/05

2/05

Gross

39.9

38.5

37.2

35.8

35.1

33.9

Op.

7.6

5.4

3

1.2

(0.6)

(2)

Net

4.7

3.3

1.9

0.8

(0.6)

(2.2)

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

One Fool says:
Girouard told investors to expect to see inventories decline 10% year over year in tomorrow's report. Believe him. When Pier 1 called its inventories "lean" just prior to last quarter's report, the numbers bore this out -- showing almost no growth whatsoever in inventories in comparison to February 2005. That was a reversal of the trend to dangerously tottering piles of inventories at the retailer in previous quarters, and to be honest, I like this new trend a whole lot better. Let's hope it continues.

Competitors:

  • Bed Bath & Beyond (NASDAQ:BBBY)
  • Cost Plus (NASDAQ:CPWM)
  • Restoration Hardware (NASDAQ:RSTO)
  • Target (NYSE:TGT)
  • Wal-Mart (NYSE:WMT)
  • Williams-Sonoma (NYSE:WSM)

Bed Bath and Beyond is a Motley Fool Stock Advisor recommendation. Wal-Mart is a Motley Fool Inside Value recommendation. Try out any of our investing newsletters free for 30 days.

Fool contributor Rich Smith does not own shares of any company named above.