Pier 1 Falls Off The Deep End With 'Distressing' Q4 Report

The fourth-quarter earnings of Pier 1 Imports Inc PIR fell far below analyst expectations.

Management reported sales of $412.51 million and comps of -13.7 percent against respective estimates of $426.12 million and -10.5 percent. The Street had forecasted loss per share of 23 cents, but the rate plunged to 85 cents.

For the entire year, adjusted earnings before interest, tax, depreciation and amortization came in at -$136.7 million, and free cash flow sunk to -$135.2 million.

At time of publication, Pier 1's stock traded down 21 percent at 51 cents per share.

The Main Issue

Raymond James called the report “distressing,” and while it didn’t recommend shorting the stock, it reiterated its Underperform rating. Among the many perceived problems was negative store comps, driven by a decline in average order value from both lower store traffic and poor merchandise mix.

KeyBanc Capital Markets attributed a 19.5-percent sales decline to the comps, and management blamed the miss on a shift in and exclusion of certain holiday selling days.

“Excluding this shift, it implies comps would have been approximately -6%,” analysts Bradley Thomas and Andrew Efimoff wrote in a note. “While this would have been an improvement in trend from 1Q-3Q18, the comparison was much easier in 4Q, so the adjusted 2- and 3-year stacked rates still would have represented a slowdown.”

Other Problems

Raymond James also called attention to disruptive management turnover, a jeopardized NYSE listing, and “a financial condition that seems destined to become increasingly untenable as FY2020 unfolds into FY2021.”

RayJay analysts Bobby Griffin and Budd Bugatch saw just one bright spot in Pier 1’s situation.

“About the only item to give heart was the fact that total inventories had been reduced from F3Q19 and were essentially ‘flat’ year-over-year,” they wrote. “That said, we were unable to elicit any information about the quality of the inventory.”

Untempered Pessimism

Pier 1 announced cost-savings plans to create $100 million to $110 million in benefits in 2019. The strategy includes improving marketing and promotions, sourcing and supply chain, cost-cutting measures, store optimization, and SG&A expenses, as well as potentially closing stores.

Still, the plan may be too little too late.

“Given the trends in the business, and its negative EPS, EBITDA, and FCF, we see PIR and its $1.6B in revenues as potentially at risk of needing liquidation if trends don’t improve,” KeyBanc wrote.

And Raymond James, which anticipates $200 million in financing, still sees no clear path to profitability or self-financing.

“To its credit, the new leadership at Pier 1 appears to be working very hard to right its ship,” Griffin and Bugatch wrote. “But the problems are many and it is not clear that the leadership has the time and pathway to the resources that will allow its plan to work.”

Photo by Steve Morgan/Wikimedia.