Shares of specialty home furnishings retailer Pier 1 Imports (PIR: Charts, News, Offers) soared at the end of last week, climbing 11% during Thursday trading before declining 1.5% on Friday. The stock is now flirting with new highs and had traded in a 52-week range of $5.67 to $12.16. The company reported earnings of 48 cents per share, or $57.1 million, in contrast to 30 cents per share the previous year. The company also reported an 7% increase in revenue, from $396 to $426.6 million, attributed to a higher conversion rate and average ticket. Analysts had been expecting 47 cents per share on revenue of $425.6 million. Same store sales also increased 8.9%, with sales increasing 11.3% in March alone. All these numbers have forced analysts to rethink their estimates on the previously neglected stock, with several firms anticipating a breakout above $14. The company has attributed its improved numbers across the board to rebounding consumer spending, cost control measures and new merchandising initiatives.
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Fort Worth, Texas-based Pier 1′s merchandise margins comprised 58.4% of sales, in contrast to 55.8% the previous year. Net income for the year increased 15% to $100.1 million, or an EPS of 85 cents, an improvement over the $86.8 million, or 86 cents per share, it reported for the previous year. The company’s 2010 revenue increased to $1.4 billion from 2009′s $1.29 billion. Adding icing to the cake, Pier 1 announced a three-year share repurchase plan of up to $100 million to complement its three-year growth plan, which is intended to increase sales volume and profitability. Pier 1′s revenue comes from two primary channels – furniture (40%) and home decorations (60%). The company owns 973 stores in the United States, 81 in Canada and licenses its brand to Grupo Sanborns and Sears Puerto Rico, which sells the licensed products in 34 Sears Mexico Stores and one Dorian’s store.
Pier 1′s first priority is to increase its e-commerce footprint, a strategy many retailers have adopted in order to decrease a costly brick-and-mortar presence. As of April 2011, the company still does not sell its items through its website, but intends to start selling through its website by summer 2012. The company also intends to invest $200 million in existing stores with the intention of increasing its sales to square foot ratio to $200 per retail square foot. CEO Alex W. Smith stated, “Our Pier 1 Imports brand is getting stronger and we are ensuring that we have the right tools in place to become a best-in-class, multi-channel retailer.” Pier 1 also stacks up well against its industry peers. The company’s forward P/E of 14 is more appealing than the industry average of 21.1, and is likely to be boosted by positive industry trends, such as rival Bed Bath & Beyond’s (BBBY: Charts, News, Offers) earnings beat.
Looking forward, the company could hit several speed bumps. First and foremost, the company is dependent on the U.S. housing market, which has been in a slump since the sub-prime mortgage crisis of 2008-2009. Without a presence in emerging markets, the company is also highly vulnerable to the declining dollar. The weak dollar actually hurts Pier 1′s margins more than in its competitors, since the company imports many of its products from Europe, Asia, Brazil, Mexico and other emerging markets. Superstore competitors, such as Wal-Mart (WMT: Charts, News, Offers) and Target (TGT: Charts, News, Offers) are attractive choices for budget-minded consumers, and their furniture and home decorations, many of which are made overseas and sold at high margins, can be sold at more attractive prices than Pier 1. Lastly, the company’s lack of a functional shopping function on its website for at least another year puts it far behind the technological curve and at the mercy of rising online superstore Amazon (AMZN: Charts, News, Offers), which sells furniture and home decorations at deep discounts.
Other News About PIR
Pier 1 4Q net income rises on better sales
Pier 1 surprises analysts.
Pier 1 Shares Popped: What You Need to Know
Pier 1′s price target gets an upgrade.
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Bed Bath & Beyond Shares Hit New Life-Time High on Q4 Results
Pier 1 wasn’t the only one to surprise analysts.
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Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
