Pier 1 Imports Reports Net Loss For Quarter

Furniture World Magazine

Pier 1 Imports, Inc. announced a net loss of $30.2 million, or $0.34 per share, for the second quarter ended August 30, 2008, versus $43.4 million, or $0.49 per share, reported for the same period last year, a 31% improvement. Year to date, the Company recorded a net loss of $63.0 million, or $0.71 per share, versus $99.8 million, or $1.14 per share, last year, a 37% improvement. Return to Profitability Alex W. Smith, the Company's President and Chief Executive Officer, said, "As I said in our announcement earlier this month, our second quarter was not what we had hoped in terms of merchandise margin, but we took the necessary steps to clear seasonal inventory and to prepare our stores for the arrival of our fall and harvest merchandise. As a result of these efforts, we began our third quarter with clean inventory and early September results show margins returning to levels that are more in line with our expectations. "As we embark on the fall and holiday selling seasons, we expect that our marketing, merchandising, and in-store strategies will continue to improve conversion rates and drive incremental traffic. We have the right strategies in place to return our Company to profitability and beyond, and in spite of the economic factors which are slowing the process, we remain confident that we are on the right trajectory. We look forward to sharing more information concerning our plans for the rest of the year later this morning on our conference call." Sales and Merchandise Margins Total sales for the second fiscal quarter declined to $320 million from $345 million in the year-ago quarter primarily as the result of decreased store count and the elimination of ancillary businesses. Comparable store sales for the quarter declined 1.7%. Comparable store sales during the quarter were impacted by increases in conversion rate and units per transaction as well as a reduction in average ticket. Comparable store sales were also negatively impacted by a reduction in marketing expenditures in the second quarter of $4.0 million, or 29% when compared to the same period last year. As previously indicated, the Company has repositioned the use of its marketing dollars to coincide with the critical holiday selling season. Total sales for the first six months of fiscal 2009 were $631 million, versus $701 million for the same period last year. Comparable store sales for the first six months declined 3.9%. Merchandise margins for the quarter were 49.3%, compared to 47.0% in the same period last year. Merchandise margins during the quarter were impacted by the semi-annual clearance that occurred in July, as well as the deeper than anticipated markdowns on outdoor furniture and garden accessories. The margin impact was especially evident in markets experiencing greater economic difficulties. On a comparable store basis, merchandise margin dollars increased approximately 1% over last year. Store occupancy costs were $72 million compared to $75 million last year, and overall gross profit dollars were $86 million compared to approximately $87 million last year. For the first six months of fiscal 2009, merchandise margins were 50.3%, versus 46.3% for the same period last year. On a comparable store basis, merchandise margin dollars increased approximately 1.6% over last year. Store occupancy costs were $143 million year to date versus $150 million last year. Gross profit dollars were $174 million in the first six months versus $175 million over the same period last year. Selling, General and Administrative Expenses During the second quarter, selling, general and administrative expenses were $107.0 million for the quarter, a decline of $10.4 million when compared to the year ago quarter, and included special charges of $5.0 million compared to $7.4 million in the second quarter last year. Special charges during the quarter included the one-time costs related to the withdrawn offer to acquire Cost Plus, Inc. of $1.7 million, lease termination charges of $2.4 million primarily related to the exit of distribution warehouse space and $0.9 million in severance and other charges. Excluding the special charges, ongoing selling, general and administrative expenses declined $8.0 million from the year ago period. The primary drivers of the decrease in costs were savings of approximately $4.0 million in marketing expense, $1.0 million in store payroll, and $3.0 million in other general costs. Selling, general and administrative expenses were $216.4 million during the first six months, a decline of $33.2 million when compared to the year ago period and included special charges of $7.8 million versus $14.3 million last year. Special charges in the first six months of fiscal 2009 included lease termination charges of $3.0 million, $3.1 million in severance and other charges, and the one-time costs related to the withdrawn offer to acquire Cost Plus, Inc. of $1.7 million. Excluding the special charges, ongoing selling, general and administrative expenses declined $26.7 million from the year ago period. The primary drivers of the decrease in costs were savings of approximately $12.1 million in marketing expense, $5.7 million in store payroll, and $8.9 million in other general costs. Inventory and Liquidity During the quarter, the Company's semi-annual sale was targeted at clearing seasonal and discontinued inventory. In addition, the Company adjusted the timing of its purchases to receive the merchandise closer to the need. As a result, inventory at the end of the quarter was $379 million, $20 million below the previous projection. Inventory levels will build throughout the third quarter as the holiday season approaches and the Company now expects to end the third quarter with inventory levels of $410 million, $20 million below last year. Overall, the Company anticipates continued reductions in inventory when compared on a year-over-year basis and now expects year-end inventory levels of $350-360 million, compared to $412 million last year. As of the end of the second quarter, cash and cash equivalents were $191 million. The Company completed the sale of its corporate headquarters at the beginning of the fiscal quarter and received net cash proceeds of approximately $102 million. Net cash provided by operating activities for the first six months was approximately $1 million, versus a usage of approximately $53 million over the same period last year. Fiscal 2009 Guidance Given the difficulties and uncertainties surrounding the macroeconomic environment, the Company will not provide guidance for the remainder of this fiscal year and withdraws the previous guidance provided. The success of the Company's turnaround will best be measured by two key metrics: merchandise margin and operating profit. Year-over-year comparisons of these metrics will better indicate the Company's progress in this challenging retail environment. The Company's results in the second half of the year will depend on maintaining current traffic levels. Assuming similar traffic levels, modest improvements over last year in the key metrics are expected throughout the second half of this year. Pier 1 Imports, Inc. is the original global importer and is North America's largest specialty retailer of imported decorative home furnishings and gifts. Information about the Company is available on www.pier1.com