Thursday, home improvement retailer Pier 1 Imports Inc. (PIR) reported a narrower net loss in its second quarter, helped by lower operating costs, despite a decline in comparable store sales due to reductions in traffic. The Fort Worth, Texas-based company's loss per share was narrower- than-expected by the Wall Street analysts. Looking ahead, the importer of decorative home furnishings and gifts said it feels very well positioned for the third quarter, and that it sees a stronger sales trend in the third and fourth quarter.
Second-quarter net loss was $15.78 million or $0.17 per share, compared to a net loss of $30.16 million or $0.34 per share, for the same period last year.
On average, five analysts polled by Thomson Reuters expected the company to report a loss of $0.22 per share for the quarter. Analysts' estimates typically exclude special items.
Total sales for the quarter declined to $286.67 million from $320.49 million in the year-ago quarter, yet beat three analysts' consensus revenue estimate of $281.92 million.
Comparable store sales during the quarter declined 7.6%, attributed to reductions in traffic reflecting the sluggish economic environment. Without the effects of Canadian currency conversion rates, the decline in comparable store sales was 6.9% during the fiscal quarter.
Operating loss was $15.30 million, narrower than prior year's operating loss of $28.43 million, mainly due to decline in operating costs and expenses to $301.98 million from $348.92 million a year ago.
Merchandise margins for the quarter were 52% of sales, compared to 49% of sales in the same period last year, positively impacted by reduced markdown activity as well as strong initial mark ups.
Commenting on the results, Alex Smith, president and chief executive officer, said, "At the end of the first quarter we indicated that, despite the pressure of the economic environment, our relentless focus on executing our business priorities, which speak to great merchandise, great stores, and a lean and efficient infrastructure, was yielding results. We are very pleased with what we were able to accomplish in the second quarter as our sales, merchandise margin and operating results continued to exceed our internal budgets."
In the preceding first quarter, Pier 1 Imports had reported a net profit of $29.31 million or $0.32 per share, compared to a net loss of $32.82 million or $0.37 per share last year, driven by substantial gain on repurchase of debt and lower cost and expenses. Net sales declined to $281.13 million from $310.02 million in the comparable period a year ago.
Among others in the field, Cost Plus Inc. (CPWM), a home furnishings and entertaining products retailer, in late August reported a second-quarter net loss of $20.76 million or $0.94 per share, narrower than prior year's loss of $26.64 million or $1.21 per share, despite a 13% decline in quarterly sales. The Oakland, California-based company's Net sales for the quarter were $183.4 million, down 13% from last year, and same store sales decreased 10.9%, compared to an increase of 1.2% a year ago, attributable to a 7.7% reduction in the average ticket per customer primarily due to lower dining and living furniture sales and a 3.4% decline in customer count.
Bigger rival Bed Bath & Beyond, Inc. (BBBY) is slated to release its second-quarter earnings results on Wednesday, September 23. Analysts currently expect earnings of $0.47 per share on sales of $1.90 billion, compared to prior year's earnings and sales of $0.46 and $1.85 billion, respectively.
For the first six months of fiscal year, Pier 1 Imports reported net income of $13.53 million or $0.15 per share, compared to a net loss of $62.98 million or $0.71 per share for the same period last year. Total first-half net sales declined to $567.80 million from $630.51 million in the year-ago period. Comparable store sales dropped 7.5%, while the drop was 6.5% without the effects of Canadian currency conversion rates. Merchandise margins for the first six months were 53% of sales, compared to 50% of sales last year.
Looking ahead, Smith said, "we feel very well positioned for the third quarter. Our level of clearance inventory is very low and our initial markups are strong. Consequently, we expect to continue to see significant improvements in merchandise margin on a year over year basis. As previously indicated, our purchases for the fall and holiday selling season were less cautious than the first half as we anticipate a stronger sales trend in the third and fourth quarter. Customers are responding positively to our fall merchandise, and although it is early in the quarter, we are generating positive comparable store sales so far in September."
In an August 31 research note, KeyBanc Capital upgraded Pier 1 Imports shares to 'Hold' from 'Underweight'. Analyst Bradley Thomas said that since he initiated coverage on Pier 1 in August 2008 with his Underweight rating, the stock has declined 35%, compared to an increase of 8% for the S&P Retail Index. The company's position as a value-oriented home retailer comes with pluses and minuses. The analyst noted that while the company would appear ideally suited to benefit from the current consumer environment and cost-conscious first-time home buyers, unfortunately its niche results in heavy competition with heavyweights Target and Walmart.
While Pier 1's management team has been proactive with new merchandising initiatives and cost controls, and the analyst continues to believe management is taking the right steps, he would like to first see evidence that the company is hitting the mark with its customer base.
PIR closed Wednesday's regular trading session at $2.91, up $0.11, on a volume of 6 million shares.
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