Updated from 7:28 a.m. EST

Pier 1 Imports

(PIR) - Get Report

swung to a surprise fourth-quarter loss, but investors bid up the stock 6% Thursday after the home furnishings retailer said it may sell its credit card business.

Pier 1's chairman and chief executive Marvin Girouard said on a conference call with analysts Thursday that the company has benefited from owning its own credit operations, but it's considering whether the time has some to sell off the unit. A number of prominent retailers have made similar transactions recently.

"If it helps the business by outsourcing it, we will do that," Girouard said.

Shares of Pier 1 closed up 71 cents to $12.58, even after the company reported continued sales declines in its holiday quarter and a bottom-line loss $10 million, or 11 cents a share. Prior to discontinued operations, including unspecified charges related to "transitional costs" and other adjustments, the company recorded a loss of 8 cents a share.

On average, analysts polled by Thomson First Call were expecting the retailer to post a profit of 1 cent a share for the quarter. Pier 1 earned $18.8 million, or 21 cents a share, in the year-ago period.

Pier 1's sales rose 0.7% to $506 million, missing Wall Street's consensus estimate of $535 million. Its same-store sales, a key metric used to gauge a retailer's competitive strength, fell 2.9% for the quarter. In addition, the retailer reported that its March same-store sales dropped 2%. The company has previously warned that heavy discounting would affect the current quarter's results as it moves to clear out merchandise for a new marketing campaign.

Shares of Pier 1 lost over half their value in 2005 as its sales and earnings plunged while competitors like

Target

(TGT) - Get Report

stole market share. Now, the company is purging its store base of underperformers and transforming its sales floors and marketing efforts to better compete.

In early March, the retailer adopted a look it calls "Pier 1 meets modern" in stores and began a targeted marketing program, consisting of new national television ads and a spring catalog mailing to 10 million customers.

"It is too early to make any assertions on longer-term success; however, we are encouraged by initial feedback on the new merchandise and easy-to-shop store presentations," Pier 1 said. "We believe that by the end of the first quarter and into the beginning of the second quarter, we will begin to see notable improvement in customer traffic."

Despite the company's optimism, Wedbush Morgan Securities analyst Joan Storms says the stock's rally was sparked by talk of sale of the credit card unit, on top of speculation surrounding the intentions of Jakup a Dul Jacobsen.

Jacobsen, who

disclosed a 10% stake in Pier 1 in February, is a European retail magnate. He's chairman of an Iceland-based firm called Lagerinn ehf, and franchises Jysk stores (pronounced yoo-sk), a home furnishings chain that's known as the Danish version of IKEA.

Last month, Pier 1

struck a deal to sell its U.K.-based Pier Retail Group to Jacobsen's company for about $15 million. Otherwise, Jacobsen has indicated he's a passive investor at the company, but some observers don't believe he will stay behind the scenes. Last year, Jacobsen disclosed a stake in

Linens n'Things

just before the home furnishings chain agreed to be acquired by a private equity group, and just this week, he disclosed a 9.9% stake in a Pier 1 competitor,

Cost Plus

(CPWM)

.

Some market watchers view the activity as a sign that Jacobsen is looking for an acquisition that will give him a new foothold in the U.S. market. Since he revealed his position at Pier 1, the stock has jumped 6.3%, before Thursday's gains. For 2006, it's now up around 17%.

"

Jacobsen has really put a floor under the price of Pier 1 shares," says Storms (she doesn't own shares of Pier 1 and her firm has no banking relationship with the company). "We still have no visibility on the success of the company's turnaround efforts."

Meanwhile, the company also said it overstated cash flow related to transactions involving credit card receivables, and it will restate its cash flow statements for the past three years. Its lenders have agreed to waive any default that would have resulted from the cash flow restatements not meeting accounting standards.

On the real estate front, Pier 1 closed 38 stores in its fiscal 2006 and plans to close 35 stores in 2007, up from its previous plan for 27 closings in 2006 and 20 in 2007. It also said it plans to open 40 new Pier 1 stores in fiscal year 2007.

On the conference call, Girouard said Pier 1's turnaround "won't happen as quickly" as he would like it to, but the company is positioning itself to be a strong competitor in home furnishings in the future.