Pier 1 Imports
How it got burned
Five years ago, Pier 1 was in dire straits. For several years, it had experienced declining sales and even worse profits, ultimately experiencing a trailing-12-month loss of $261 million in early 2007.
At the time, Pier 1 brought in new CEO Alex Smith and went as far as to fight a legal battle with his previous employer, TJX
Whether the fight was worth it was not immediately apparent. Revenues continued falling through 2009, the stock traded down to a single dime per share, and rumors swirled about possible bankruptcy.
Sacrifices to the Wicker Man
Things have improved at Pier 1, though. Operating margin has improved from negative-15% in 2007 to a recent 10%, a result of laying off employees, closing unprofitable stores, and renegotiating rents.
To avoid bankruptcy, Smith even took the extraordinary step of selling the company's headquarters building, constructed just a few years prior, and used the cash to buy back Pier 1's distressed debt at a cheap price to make the company debt-free.
One of the most important steps Smith took was to double the buying team in an effort to add more specialization and give the team more resources. In light of the recession, the team focused on shifting the merchandise assortment toward selling more low-priced, knick-knack items, and fewer high-priced luxury furniture pieces. As a result, people entering Pier 1 stores have been more likely to actually buy something, offsetting the negative effects of lower traffic and transaction amounts.
The naysayers claim that Pier 1's offering of wicker chairs and other kitschy housewares is easily matched by the same sort of offerings at Wal-Mart
Same-store sales have improved from negative-15% in the second quarter of 2007 to 10.3% in the most recent quarter, the 10th consecutive quarter of growth. Pier 1's same-store sales growth has been beating even competitor Williams-Sonoma
And despite its rapid growth and operating improvement, Pier 1's stock is cheaper than even Wal-Mart's, at a P/E of 11.75 compared with 13.20.
Bringing back the honey
One of the surest signs of Pier 1's successful turnaround is how quickly it has met its three-year goals. A year ago, management called for a 10% operating margin and $200 in sales per retail square foot within three years. It has already met the operating-margin goal, and sales per square foot reached $184 recently. Management is now upping the ante, calling for 12% and $225, as well as $200 million in investments to renovate or open stores and repurchase shares. This ship has turned around, but it won't wait at the pier forever.
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