PIer 1 Announces Year To Date Sales Down 8.3%

Furniture World News

Pier 1 Imports, Inc. announced a net loss from continuing operations of $73,059,000, or $0.84 per share, for the second quarter ended August 26, 2006. Excluding unusual charges and the effect of the adoption of a new accounting pronouncement (see reconciliation table below), loss per share on a non-GAAP basis for the second quarter of fiscal year 2007 amounted to $29,256,000 or $0.34 per share versus $6,373,000 or $0.07 loss per share from continuing operations in the second quarter of fiscal year 2006. Total sales declined 12.5% for the second fiscal quarter to $370,698,000, from $423,675,000 in the year-ago quarter, and comparable store sales declined 14.8%. For the first six months of fiscal 2007, the Company's net loss from continuing operations was $95,824,000, or $1.09 per share, compared to a loss per share of $0.17 for the year-ago period. Year-to-date sales amounted to $746,790,000, down 8.3% from $813,989,000 in the year-ago period, and comparable store sales declined 10.9%. Reported results in the second quarter included a non-cash charge of $24.6 million or $0.28 per share to establish a valuation allowance against the Company's net deferred income tax assets that arose in prior years. In evaluating the likelihood that sufficient earnings would be available in the near future to realize the deferred tax assets, the Company considered cumulative losses over three years including the current year. The Company concluded that a valuation allowance was necessary based upon this evaluation and the guidance provided in Statement of Financial Accounting Standards ("SFAS") No. 109. A tax benefit has been provided on losses for the current year only to the extent such losses can be carried back to offset taxable income in a previous year. This limitation reduced the current tax benefit by $9.6 million or $0.11 per share. The Company will have the ability to realize the deferred tax assets should future earnings be sufficient to do so and the charge will have no impact on current cash flows. Unusual charges reported during the second quarter included the following: a pre-tax charge of $4.6 million or $0.04 per share attributable to a labor litigation settlement and related costs; a non-cash charge of $3.1 million or $0.03 per share for store-level asset impairment charges; a $2.7 million or $0.02 per share charge for relocation and integration of the Pier 1 Kids' headquarters and warehouse into Pier 1 facilities; and a non-cash charge of $2.7 million or $0.02 per share for stock-based compensation expense in compliance with SFAS 123R. Operating Results Merchandise margins improved to 49.2% from 49.1% in the year-ago quarter. Store occupancy costs increased $4.0 million to 20.8% of sales in the second quarter versus 17.2% for the year-ago quarter. Selling, general and administrative costs were 41.3% of sales compared to 31.9% of sales in the second quarter last year. Payroll costs as a percentage of sales were higher during the quarter versus last year, and marketing costs were 7.5% of sales compared to 5.1% in the year-ago period. Marvin J. Girouard, the Company's Chairman and Chief Executive Officer, said, "Although we are well underway with our turnaround strategy, we are disappointed to report a significant loss for the second quarter. We did have a number of one-time charges which impacted the quarter. Additionally, sales were soft in June and July, improved slightly in August, but our fixed costs were too much to overcome. We expect to do better over the next few months through the critical fall and holiday selling seasons. We have dramatically changed our stores and our merchandise assortments to present new, eclectic and differentiated collections that offer better quality products, compelling visual presentations and a superior shopping experience in an effort to attract new customers. "With 100 days remaining until Christmas, we are focused on the all-important holiday season. We have planned increases in store-level inventory for decorative accessories, gifts and tabletop collections, although total inventory is being carefully monitored and is currently 15% below last year. We have an aggressive marketing program scheduled for the third and fourth quarters of this year and new visual presentations planned for stores that will feature a broad assortment of value-priced items." This release references non-GAAP loss per share information that includes 1) the tax valuation allowances established against the Company's net deferred tax assets, 2) a litigation settlement and legal costs, 3) impairment charges on store-level assets 4) relocations and integration costs related to Pier 1 Kids, and 5) the impact of SFAS 123R for recording stock-based compensation. The Company believes that the non-GAAP financial measures allow management and investors to understand and compare the Company's operating results in a more consistent manner for the second quarter of fiscal year 2007. These non-GAAP measures should be considered supplemental and not a substitute for the Company's financial results that are recorded in accordance with generally accepted accounting principles for the periods presented. Pier 1 Imports, Inc. is North America's largest specialty retailer of imported decorative home furnishings and gifts with Pier 1 Imports® stores in 49 states, Puerto Rico, Canada, and Mexico and Pier 1 kids® stores in the United States. Information about the Company is available on www.pier1.com.