Pier 1 Imports Posts Poor Quarterly Results; Investors Should Stay Away

Shares of Pier 1 fell hard after reporting Wednesday of poor quarterly earnings and soft traffic to its stores.
By Matt Thalman ,

Pier 1 Imports (PIR) - Get Report reported quarterly earnings on Wednesday after markets closed, and on Thursday the stock fell 5.6% as investors ran for the door. Often after a stock bombs, some investors believe there may be value due to the massive sell-off.

That is true in some cases, but investors should stay as far away from Pier 1 as possible. If Pier 1 remains on its current path, the company's future doesn't look bright and there will be few opportunities to make money. The company's earnings were poor, and its stock buy back doesn't seem like the move of a confident company. Moreover, store traffic has been sluggish. 

Wall Street was expecting Pier 1 to report a quarterly loss of $0.05 per share, but instead the company posted a $0.07 per share loss. The company also missed on revenue as Wall Street was expecting $420 million. Pier 1 posted $418.4 million.

While neither miss was that large, the company's performance coupled with a revised guidance downward is discouraging for investors. Management believes the company will post a loss of $0.06 per share in the quarter that's just beginning.

Net sales during the most recent quarter fell 4.2%, while comparable store sales dropped 2.5%. Gross profit as a percent of sales also declined from 38.8% during the same quarter last year to 35.6%. This was mainly due to higher marketing expenses during the quarter and changes that the company made to its distribution systems. Pier 1 said those changes were necessary to improve inefficiencies. 

The company was optimistic about the results of these changes and expects its performance to improve in the second half of its 2017 fiscal year. "Our brand is strong and our customers love us," said Pier 1 CEO Alex Smith. 

In addition, not all analysts were discouraged about Pier 1's prospects. BB&T capital markets maintained a hold rating on the stock. In a note Thursday, the company said that "liquidity was not an issue."

Still, the company's CFO Jeffrey Boyer said that "soft store traffic continues to weigh on our performance."

Pier 1's industry is competitive with the likes of Bed, Bath & Beyond and Williams-Sonoma, the parent company to Pottery Barn waiting to seize on any weakness. Perhaps the bigger problem is consumers' rapidly increasing preference to shop for products online. The ricks-and-mortar retailers that can best address this trend will survive, but it's not an easy task. 

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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