Pier 1 loss narrows; stronger sales trends seen

BANGALORE (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, sending its shares up 13 percent.

Pier 1, which expects significant improvements in merchandise margins in the current quarter, said its purchases for the fall and holiday selling season were less cautious than in the last two quarters.

The news and the optimistic comments also lifted shares of peer Bed Bath & Beyond Inc (BBBY.O) more than 3 percent to a year-high of $39.76. It will report results next week.

"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.

Analyst Budd Bugatch at Raymond James reaffirmed his "strong buy" rating on Pier 1 following the results.

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.

Pier 1, which has reached rental reduction agreements on about 30 percent of its stores, said these would translate into savings of about $11 million on a cash basis in fiscal 2010.

Although the retailer plans to focus on getting rents lowered rather than terminating leases, it still expects to close about 50 locations this fiscal year.

The net loss narrowed to $15.8 million, or 17 cents a share, in the second quarter that ended on August 29, from $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.

Pier 1 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, it said it was generating positive comparable-store sales thus far in September.

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.

Pier 1 shares were up 13 percent at $3.29 on Thursday morning, making it one of the top percentage gainers on the New York Stock Exchange.

(Reporting by Dhanya Skariachan in Bangalore; Editing by Lisa Von Ahn, Dave Zimmerman)