Raymond James: Pier 1 May Be 'Beyond Saving'

A sale could be in the offing for Pier 1 Imports Inc PIR, which saw its stock freefall this week after another deeply disappointing earnings release, according to a bearish Raymond James. 

The Analyst

Analyst Budd Bugatch reaffirmed an Underperform rating on Pier 1.

The Thesis

Pier 1's third-quarter report showed a 36-cents-per-share loss, 30 cents below estimates. Sales figures also fell short, dropping 11.9 percent year-over-year, with comparable sales declining 10.5 percent year-over-year. The report coincided with CEO Alasdair James' departure.

Bugatch called the Q3 print a "dumpster fire" and said Pier 1 may be "beyond saving" in a Thursday note.

“We are both sad and angry: sad that the company's associates and customers are now at significant risk and angry at a board of directors that, in our view, is culpable for allowing this crisis to develop."

The analyst criticized the board for bringing James on in the first place after firing previous CEO Alex Smith, who Bugatch said led Pier 1 out of an earlier crisis. 

“James led it back into crisis, where it now sits."

The company’s recent effort to downscale its marketing and offer lower-priced goods alienated suppliers, Bugatch said. Pier 1 said it will start a more rigorous cost-reduction program in fiscal 2020.

Bugatch also questioned the decision to bring in new CEO Cheryl Batchelder, a Pier 1 board member who is the former CEO of fried chicken chain Popeye’s Louisiana Kitchen, which was acquired last year by Burger King parent Restaurant Brands International Inc QSR.

“We wonder how success in an industry that requires competency in combining a limited number of ingredients into a deep fryer prepares that same leader to develop a recipe for success in a company where the menu of merchandising has 5,000 to 6,000 items per store?"

Price Action

Pier 1 was trading down 16.73 percent at 40 cents on Friday.

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Photo by Paul Sableman/Wikimedia.