Another earnings release, another loss at embattled retailer Pier 1 Imports (NYSE:PIR).

Fourth-quarter results weren't as bad as feared, but the company has some major soul-searching to do to determine if its woes are self-inflicted or beyond its control, which is an important distinction for investors.

Total fiscal 2007 sales fell 8.6%, as same-store sales dropped a dismal 11.3%. Pier 1 reported an operating and overall loss for the second straight year, as well as a continued slide in profit margins. Operating cash flow fell further into negative territory, but the company was able to cut capital expenditures by half to conserve capital.

On a more positive note, it doesn't look like Pier 1 will be fed to the vultures. It did stop paying dividends last fall and recently decided to ax 175 employees, but it still has $167 million in cash, and overall debt levels don't appear overly burdensome. It also announced the retirement of CEO Marvin Girouard at the end of January, and appointed Alex Smith from successful retailer TJX (NYSE:TJX) -- operator of the TJ Maxx and Marshalls discount stores -- to help turn things around.

Investors will run for the hills if sales and earnings don't recover soon. The company believes that bad merchandising decisions are to blame, since rivals such as Crate & Barrel and Williams-Sonoma (NYSE:WSM) are at least doing OK selling home furnishings and related goods.

But is Pier 1 fighting a losing battle? It's only getting harder for smaller retailers to survive. A recent USA Today article interviewed consumers who are gravitating away from Pier 1 and toward TJ Maxx, Target (NYSE:TGT), and Wal-Mart (NYSE:WMT), who all now hawk the affordable, seemingly exotic imported furniture that once defined Pier 1.

That's a bad trend for Pier 1 and small rivals like Restoration Hardware (NASDAQ:RSTO). At the end of the day it comes down to merchandise mix, so why would shoppers make a special trip to Pier 1 when they can get it all done with a trip to a big-box retailer? The game isn't over yet for Pier 1, but there may be better retailers to watch.

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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.