First-quarter results for Pier 1 Imports (NYSE:PIR) were a disappointment. Comparable same-store sales declined 6.6% while net sales decreased 3.6%. What challenges is the company facing, and what is it doing about it? To find an answer, I've asked Bodhi Zappa and Hank Schofield to join me once again as we analyze the latest quarterly earnings conference call for Pier 1.
Jeremy: Bodhi, you're an optimist to the end, but even you have to be discouraged by the latest results.
Bodhi: Sure, if we simply focus on recent results -- it's hard to find much to like. But what has me thrilled is the move the company is currently making today in preparation for tomorrow.
Jeremy: Can you be more specific?
Bodhi: Pier 1 is transitioning itself away from the middle range, in terms of price and quality in the home furnishings market, and into the "higher end" of the industry. The company now sees itself as an alternative to Williams-Sonoma's (NYSE:WSM) West Elm and Pottery Barn, as well as Restoration Hardware (NASDAQ:RSTO) and Crate and Barrel.
Hank: In recent quarters, Pier 1 was getting kicked around in the middle range, and now it thinks it has the muster to hang with more upscale retailers?
Bodhi: The reason it was getting hammered in the middle is exactly why it's compelled to move into the higher end of the market. In the middle, it was being crushed between mass merchandisers ranging from Target (NYSE:TGT) on one end to high-end retailers on the other. Management believes Pier 1 is better suited to take on the latter, and I agree.
Hank: What is the problem again? We heard a litany of reasons offered in the call. First it was macroeconomic factors like rising fuel costs and higher interest rates. Then management pointed to its research that suggested a shift in tastes related to home decor is "adding indecision in discretionary home-related purchases." Next, this uncertainty is being further exacerbated by the "number of retailers selling accessories and furniture for the home." And finally, it was the squeeze being put on by mass merchandisers and high-end retailers. What it sounds like to me is everything else is to blame, except Pier 1.
Jeremy: Like you, my colleague and Fool contributor, Stephen Simpson, didn't like what he was hearing out of management. For him, the primary culprit is Pier 1 and its merchandising efforts -- it simply hasn't been selling what consumers are looking for.
As part of its move to the high-end of home furnishings market, it has launched a new merchandise collection, what management referred to as "Modern Craftsman" -- featuring more modern and contemporary designs. Will this be the answer to get comparable same-store sales moving in the right direction again?
Hank: Don't hold your breath. The new line has been on store shelves since mid-March, and the results have been lackluster at best. Even CEO Marvin Girouard had to admit that current "comp sales do not reflect measurable success in our repositioning strategy yet and are a disappointment to us." Despite the abysmal performance, management was encouraged to find sales to interior designers were up 25% compared to the same period a year ago. I found it almost laughable that the company believes the influence of interior designers will help "create the word-of-mouth buzz." If that's the objective evidence they're pointing toward to confirm that the current merchandise lineup is a winner, then I have even greater doubts than before about the prospects for this company.
Bodhi: Mr. Doomsday, I think we need to give it more time. You have to remember, Hank, that for the longest time, customers have pretty much equated Pier 1 with wicker and rattan. Now, Target and Wal-Mart (NYSE:WMT) are doing the wicker thing, and many consumers have just grown tired of the same old look. To respond, the company has to revamp its product offering and image. Girouard states, "Never have we gone through such a dramatic change in our positioning of merchandise." Such a change will take time to get the word out. It just distributed three catalogs this quarter and last month kicked off its new TV campaign. Now the company's in the process of launching its new magazine advertising campaign. Pier 1 is also employing various online strategies, such as search engine marketing. It will get the word out -- we just have to be patient.
Foolish bottom line
Jeremy: In response to one analyst, Girouard made a telling remark regarding its customers, stating, "It is just the fact that a lot of them still haven't been back to a Pier 1 store because their lifestyle changed and we didn't." Pier 1 is hoping that its move to integrate a more modern and contemporary look, while maintaining some of its traditional wicker and rattan, will be the winning strategy to get customers back into the stores. If the latest results are any indication, Pier 1 may have to go back to the drawing board sooner rather than later. Bodhi is arguing for patience, but I'm beginning to question how much patience shareholders are expected to exercise. One analyst's question reflects the general sentiment of many who follow this company, "You guys had three years to turn this around -- at what point is it incumbent upon you to think of a plan B?"
Pier 1 may be a potential turnaround play, but until it can display a plan that actually gets this ship turned around, I'm inclined to watch this one from the sidelines.
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Fool contributor Jeremy MacNealy has no financial interest in any company mentioned. The Motley Fool has an ironclad disclosure policy.
