Swimming near a pier in South Florida right now isn't exactly the brightest thing to do, unless you are looking for National Geographic-like closeups of the local wildlife -- namely, sharks. And swimming off Pier 1 (NYSE:PIR), though you'll keep your limbs intact, could be as dangerous to an investor's portfolio.

It was dark on Pier 1 a quarter ago, and shareholders hoping for it to be lit up like Wrigley Field this quarter were disappointed to find more of the same.

The first shark sighting in its fourth-quarter fiscal 2005 results came in the form of sales that declined 5.3% to $525.8 million. Comparable same-store sales for the period fell faster than a sinker, dropping 10.7% compared with the same quarter a year ago.

As revenues shrank, operating costs and expenses grew 3.4% to $495.9 million. Lower sales and higher costs equal one thing -- significantly lower net income. In this case, it was $18.8 million -- a drastic drop of 61% compared with fiscal 2004's Q4.

For the year, the company's revenues inched up 1.6% year over year, but operating margins were on the receiving end of a great white's chomp: A 50% chunk out of net margins reduced them down to 5%. The end result was fiscal 2005 earnings of $0.68 per share vs. 2004's $1.29.

If there's any calm on these waters, it's in the balance sheet that sports $189.1 million in cash and $19 million in long-term debt. But a difficult cash flow situation, partially a result of poor profit margins, leads to an enterprise that's valued at 36 times owner earnings (or structural free cash flow).

Throw in the shark-infested competition that includes Bed Bath & Beyond (NASDAQ:BBBY), Williams-Sonoma (NYSE:WSM), and Tuesday Morning (NASDAQ:TUES), among others, and you'll need a very sturdy cage -- in the form of an extra margin of safety -- before braving the waters off Pier 1.

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Fool contributor Jeremy MacNealy does not own shares in any of the companies mentioned.