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Can Pier 1 Imports Bounce Back After Last Week's 16% Drop?

By Rick Munarriz – Sep 12, 2016 at 9:37AM

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The home furnishings retailer slips after announcing weak preliminary quarterly results. Its board also ousts its CEO. Three analysts downgrade the stock.

Image source: Pier 1 Imports.

Shares of Pier 1 Imports (PIRRQ) became a fixer upper last week. The home furnishings retailer saw its stock plunge 16% after announcing unappetizing preliminary financials for its fiscal second quarter. Its CEO also decided to leave the company by the end of the year. A few analysts went on to issue bearish notes in light of the iffy results.

Net sales for the quarter that ended on Aug. 27 will have fallen by roughly 7% by the time the numbers become official later this month. That's short of the 1% decline that Wall Street pros were forecasting. A 4.3% slide in comps and store closures over the past year have weighed on top-line growth. The news doesn't get any better on the bottom line. Pier 1 is now eyeing a loss between $0.05 a share and $0.06 a share, twice the deficit that analysts were targeting. 

Pier 1 also announced that CEO, president, and board member Alex Smith will be leaving the company by year's end. The press release claims that the board "mutually agreed" with Smith on his departure, but that's basically a euphemism for getting ousted. 

Smith had been with the company since 2007. He was at the helm in 2009 when the stock bottomed out at a mere $0.10 with fears of the chain going under. Pier 1 bounced back, but the past few quarters have been rough. This will be the fourth quarter in a row that Pier 1 posts a year-over-year decline in revenue. 

Cold feet on Wall Street

At least three analysts cooled on Pier 1 following its problematic results. They all downgraded the stock.

  • Raymond James analyst Budd Bugatch lowered his rating from Strong Buy to Market Perform. He sees retail sales continue to be challenged. He's uncomfortable sticking with his former bullish rating during the CEO transition. 
  • Oppenheimer's Brian Nagel joins Bugatch with a Perform rating. It's moving lower from an Outperform rating. The rough quarter presents too much uncertainty in the investment. 
  • Credit Suisse analyst Seth Sigman downgraded the stock from Neutral to Underperform. The chain's aggressive promotional activity is a concern. He also lowered its price target from $4.50 to $4.

Pier 1's stock has been a roller coaster. Since bottoming out at $0.10 in early 2009 and peaking above $20 three years ago it's now in the low single digits. 

Income investors will be wooed by its chunky 7.3% yield. The challenge for Pier 1 will be to keep those quarterly $0.07 a share checks coming. That won't be easy if sales growth continues to go the wrong way. It's also now coming off of back-to-back quarterly losses. That can't continue if the payout is expected to be sustainable. 

Rick Munarriz has no position in any stocks mentioned. The Motley Fool is short Pier 1 Imports. 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.

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