UPDATE 5-Pier 1 loss narrows; stronger sales trends seen

Thu Sep 17, 2009 1:21pm EDT

 * Q2 loss 19 cts/shr ex-items vs Wall St view 22 ct loss
 * Cost cuts, better inventory management boost margins
 * Sees merchandise margins improving significantly in Q3
 * Sees stronger sales trends in second half
 * Pier 1 shares down 3 pct after 15 pct jump earlier
 (Adds conference call comments, analyst reaction, updates
shares)
 By Dhanya Skariachan
 BANGALORE, Sept 17 (Reuters) - Home furnishings retailer
Pier 1 Imports Inc (PIR.N) reported a smaller-than-expected
quarterly loss on cost cuts and said sales trends and margins
were improving ahead of the all-important holiday season,
sending shares up as much as 15 percent.
 The results and the optimistic comments also lifted shares
of peer Bed Bath & Beyond Inc (BBBY.O) about 3.6 percent to a
year high of $39.76. It will report results next week.
 Pier 1 expects significant improvements in merchandise
margins in the current quarter and said its purchases for the
fall and holiday selling season were less cautious than in the
last two quarters.
 It also plans to double its marketing spend in the current
quarter from second-quarter levels to woo more shoppers.
 "Green shoots are taller and the light is brighter," Pier 1
Chief Executive Officer Alex Smith said in a statement.
 The company's level of clearance inventory is very low, and
initial markups are strong, Smith added.
 The retailer, which sells goods ranging from wicker chairs
and rugs to Jack O' Lanterns and wine glasses, had said in June
that traffic at its stores was gradually improving and sales
declines in areas like Florida and the West Coast were
slowing.
 On Thursday, Pier 1 said it was generating positive
same-store sales thus far in September. On a conference call,
it indicated it was seeing improvements at both its furniture
and non-furniture businesses.
 "Which is good news. Because it means that we are no longer
under pressure from average ticket declines," Smith said.
 While analyst Budd Bugatch at Raymond James reaffirmed his
"strong buy" rating on Pier 1, Oppenheimer's Brian Nagel raised
his price target on the stock to to $3.50 from $2.00. Nagel has
a "perform" rating on Pier 1.
 However, Standard & Poor's retail analyst Michael Souers
downgraded the retailer to "sell" from "hold."
 "With negative underlying macro drivers for home goods
retailers and profitability several years away, we think the
recent surge in share price is overdone," Souers said in a note
to clients.
 Pier 1 shares were down 9 cents or 3.1 percent in early
afternoon on the New York Stock Exchange after rising sharply
earlier in the session.
 Sales at home-goods chains have suffered as the U.S.
housing slump and recession eroded demand for furnishings and
other big-ticket items.
 Pier 1, whose rivals include Williams-Sonoma Inc (WSM.N)
and Bed Bath & Beyond Inc, has been eliminating jobs, closing
stores and negotiating with landlords to reduce rents to cut
costs. It has also managed its inventory tightly.
 In the quarter, the company's selling, general and
administrative expenses fell 14 percent to $91 million.
 The net loss narrowed to $15.8 million, or 17 cents a
share, in the second quarter that ended on Aug. 29, from a loss
of $30.2 million, or 34 cents a share, a year earlier.
 Excluding a gain on retirement of debt, the loss was 19
cents a share, beating analysts' average forecast of a loss of
22 cents.
 Merchandise margins were 52 percent of sales in the
quarter, compared with 49 percent a year earlier, while
inventories were $43 million lower than last year.
 Sales at the Fort Worth, Texas-based company fell about 10
percent to $287 million. Sales at stores open at least a year
fell 7.6 percent.
 (Reporting by Dhanya Skariachan in Bangalore; Editing by Lisa
Von Ahn, Dave Zimmerman and Matthew Lewis)



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