Fools normally don't give too much mind to Wall Street expectations. But I find it quite telling that while analysts were expecting a dismal same-store sales decline of 8.2% at Pier 1 Imports (NYSE:PIR), the company made them (and itself) look foolish by reporting a precipitous 13.7% collapse on Thursday. Meanwhile, total sales fell 13.1% to $114.1 million for the month of October.
Management's attempts to turn the ship around with a revamped selection of merchandise, increased catalog mailings, and boosted advertising have yielded nothing but six consecutive quarters of net losses. So what do they have in store for November? How about we mail out more catalogs, run television ads, and launch a magazine and Internet campaign? The creative juices must be flowing up at Pier 1's corporate offices. Didn't someone once define insanity as repeating the same action while expecting different results?
It's getting to the point where management will be forced to take drastic action -- lest they drive the company right into bankruptcy court. They finally discontinued the dividend on Oct. 3, but investors seemed more shocked that it took management so long to face facts and make a tough decision.
While the nixed dividend clogs one hole in the cash flow bucket, Pier 1 seriously needs to repair its operating cash flow. The company burned just over $77 million in cash from operating activities during the most recent quarter, closing the books with only $150 million in the bank. Until a serious revamp happens, I'll continue to be wary of this stock. No matter how cheap a stock gets, the fundamentals must show improvement before investors can expect market-beating returns.
On the flip side, I'd stick with those companies that are often credited with Pier 1's downfall: Target (NYSE:TGT) and Bed Bath & Beyond (NASDAQ:BBBY).
Related links:
- Long Walk, Short Pier 1?
- Buffett's Target and Blockbuster's Net Fix
- Trash to Treasure at Bed Bath & Beyond
Bed Bath & Beyond is both a Stock Advisor and an Inside Value recommendation. It's been a bad year for Pier I, but it could still be a good year for your portfolio. Get powerful investing advice with a 30-day free trial to the Foolish newsletter of your choice.
Fool contributor Jason Ramage holds no financial interest in the companies mentioned here.
