It's the latest step down for a stock that had been one of the market's biggest winners after it bottomed out at $0.10 -- yes, a dime -- in early 2009. The stock was on the brink of filing for bankruptcy at the time. The real estate market's collapse had dried up demand for sprucing up new homes with artisan furnishings.
The retailer made it through that rough patch, and by the time the stock peaked north of $25 in the springtime of 2013, it had become a whopping 250-bagger in a little more than four years. It's been mostly downhill since then, with the stock going on to lose more than two-thirds of its peak value.
Performance at its stores has been stagnating lately. Comps may have posted a year-over-year uptick of 2.5% in its latest quarter, but that was the handiwork of direct-to-consumer sales generated through its website that Pier 1 tacks on to its comps the way many retailers do these days. Actual store traffic has been lackluster. If we only count physical store sales, online orders that get shipped to a shopper's nearest Pier 1 store, and online orders placed at the store, the year-over-year growth in comps would be flat.
The shift is weighing on margins, but there's also the problem that Pier 1 experienced with outdoor furniture. It had bloated inventory levels for its patio and porch pieces, and it had to actively promote and mark down merchandise to clear out its glut of outdoor furnishings. The end result is that gross profits declined despite the marginal increase in sales, and Pier 1's net profit of $3.2 million or $0.04 a share was roughly half as much as Wall Street was modeling.
Weakness at Pier 1 isn't something new. Earnings and book value peaked in fiscal 2012, according to S&P Capital IQ data. Both measuring sticks of health have gone on to decline every single year after that.
This is a rough time to be moving housewares. Bed Bath & Beyond (NASDAQ:BBBY) also posted uninspiring quarterly results last week, and clocked in with weaker year-over-year sales and comps growth for the same three-month period. Margins at Bed Bath & Beyond held up relatively better, but it still wasn't a treat. The only reason why earnings per share moved higher at the superstore chain was that it has been aggressively buying back stock to reduce the denominator in the equation. Actual earnings posted a year-over-year decline.
Pier 1 may appear cheap by most conventional valuation metrics. It fetches just 11 times this fiscal year's depressed earnings forecast. The stock's yield has now been pushed north of 3.7%, giving the faithful some healthy pocket change as they wait the recovery out. The problem is that we're still waiting for signs that a turnaround is actually taking place. Analysts see a return to earnings growth next fiscal year, but they have had that same fleeting optimism early in the recent fiscal years. Pier 1 has a lot to prove, and it may not be the bargain that it seems to be here in the single digits until its financials truly turn the corner.
Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Bed Bath & Beyond. 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.