What: Shares of Pier 1 Imports (NYSE:PIR) fell as much as 21% early Friday after the specialty retailer released weaker-than-expected fiscal-second-quarter 2016 results.

So what: Quarterly revenue climbed 2.7% (4% on a constant-currency basis) year over year to $430 million, helped by comparable-store sales growth of 2.5%. That translated to a 65% decline in net income to $3.2 million, or $0.04 per share. Inventories at quarter-end were $533.6 million, up a worrisome 3.9% year-over-year and outpacing actual sales growth.

But analysts, on average, were anticipating significantly higher net income of $0.07 per share on revenue of $435.7 million. 

"We are disappointed with our second quarter sales and earnings results," added Pier 1 CEO Alex Smith. "[O]ur margins were affected by increased promotional and clearance activity, as well as inventory related issues within our distribution center network." Even so, Smith insisted Pier 1 has made progress bringing inventories back in line, and should end the fiscal year with "levels down meaningfully."

Now what: As a result of those inventory challenges in the meantime, however, Pier 1 lowered its financial guidance for the year, calling for full fiscal 2016 comparable sales growth in the low single-digit range, and earnings per share of $0.56 to $0.64. By comparison, three months ago Pier 1 told investors to expect full-year comparable sales growth of 3% to 5%, and earnings per share of $0.83 to $0.87. Similarly, analysts' consensus estimates called for fiscal 2016 earnings of $0.83 per share.

For now, while Pier 1 claims it's making progress, it's apparent there's no quick fix and the company has plenty of work to do to get itself back on track. Given both its quarterly miss and reduced expectations, I can't blame Pier 1 investors for taking a big step back today.

Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.