Pier 1 Imports, Inc.reported financial results for the first quarter ended May 29, 2010.
First Quarter Highlights
- Comparable store sales growth of 14.3% versus last year’s decline of 7.5%
- Merchandise margins were 58.6% of sales compared to 54.2% last year
- Gross profit improved to 37.4% of sales compared to 30.2% last year
- Operating income of $8.3 million compared to an operating loss of $26.7 million last year
- Net income of $7.7 million or $0.07 per share
- Strong balance sheet, ending the quarter with $204.8 million of cash
- Finalized sale of Chicago distribution center for a purchase price of $11.8 million and a gain of $1.6 million
Returning to Profitability
Alex W. Smith, President and Chief Executive Officer said, “We are delighted that for the first time in six years we have achieved first quarter operating income. Store traffic, conversion rate and average ticket all increased during the quarter – our customers are clearly enjoying our merchandise, our stores and our customer service. We experienced strong performance in all merchandise divisions and all areas of the country. Our confidence level is high and we know how to keep the momentum going – continuing to rebuild our profitability one SKU and one customer at a time. We look forward to discussing our results in more detail later this morning on our conference call.”
First Quarter Results
The Company reported net income of $7.7 million, or $0.07 per share, for the first quarter, versus net income of $29.3 million, or $0.32 per share, for the same period last year, which included a $47.8 million gain on the repurchase of debt and a $10.0 million litigation recovery. Total sales for the first quarter were $306.3 million, an 8.9% increase from $281.1 million in the year-ago quarter. Comparable store sales during the quarter increased 14.3% compared to a comparable store sales decline of 7.5% last year. The sales increase for the quarter was primarily the result of an increase in store traffic, conversion rate and average ticket.
Merchandise margins for the quarter were $179.6 million, or 58.6% of sales, compared to $152.3 million, or 54.2% of sales, in the same period last year. The 440 basis point improvement in merchandise margins continues to be positively impacted by decreased clearance activity, reduced vendor and supply chain costs and well managed inventory levels. Store occupancy costs were $65.2 million for the quarter compared to $67.5 million last year. The decline was primarily the result of negotiated rental reductions with our landlords in addition to a lower overall store count. Gross profit for the quarter, which is calculated by deducting store occupancy costs from merchandise margin dollars, improved to $114.4 million, or 37.4% as a percentage of sales, from $84.8 million, or 30.2% of sales, in the first quarter of last year.
First quarter selling, general and administrative expenses were well-controlled and totaled $101.1 million compared to $105.6 million in the year-ago quarter. SG&A expenses consisted primarily of $13.6 million in marketing, $69.6 million in payroll, and $17.9 million in other G&A costs. For the quarter, SG&A expenses before special charges increased $3.1 million, or approximately 3%, compared to last year and were 33.2% of sales versus 35.0% of sales last year. Selling, general and administrative expenses for the quarter included $1.2 million in special charges relating to lease terminations and other, offset by a gain of $1.7 million primarily resulting from the Company’s sale during the quarter of its distribution center near Chicago, compared to $7.1 million in special charges resulting primarily from lease termination charges during the same period last year.
The following table details the breakdown of fixed and variable costs included in selling, general, and administrative expenses for the first quarter as compared to the same period last year.
Operating income for the quarter was $8.3 million, a $35.0 million improvement from the $26.7 million loss reported for the same period last year. The increases in sales and merchandise margins coupled with well-controlled expenses resulted in the overall improvement in operating income.
Balance Sheet and Liquidity
As of the end of the first quarter, inventory was in line with the Company’s planned expectations and was $303.2 million compared to $294.2 million at the end of the first quarter last year. Inventory per retail square foot at the end of the quarter was $37 compared to $35 a year ago. Management continues to strategically manage its inventory purchases and monitor its inventory levels to keep in line with consumer demand.
Cash and cash equivalents at the end of the quarter were $204.8 million, a $69.0 million increase over the same period last year. The Company generated $10.3 million of cash from operations during the quarter. In addition to available cash balances, the Company’s calculated borrowing base on its secured credit facility was $218.0 million and, after excluding the required availability of $30.0 million and $74.8 million in outstanding letters of credit and bankers’ acceptances, $113.2 million was available for use by the Company for working capital purposes. The Company did not utilize its secured credit facility during the first quarter for any purpose other than its customary letter of credit needs, which have continued to decline from last year. Including cash and available credit, the Company had total liquidity of $318.0 million as of the end of the first quarter. Management expects to continue to strategically manage merchandise purchases, expenses and capital expenditures throughout the fiscal year.
Total debt at the end of the first quarter, including the current portion, was $35.5 million and was comprised of $19.0 million of industrial revenue bonds and $16.5 million of 6.375% convertible notes, net of discounts. The Company anticipates that the 6.375% notes will be repaid on or before February 15, 2011. During the first quarter, the Company finalized the sale of its distribution center near Chicago for a purchase price of $11.8 million. The Company intends to repay $9.5 million of industrial revenue bonds related to the distribution center in the second quarter with the proceeds from the sale.
Pier 1 Imports, Inc. is the original global importer of imported decorative home furnishings and gifts. Information about the Company is available on www.pier1.com.