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Pier 1 Imports Inc. (PIR)

F2Q2011 Earnings Call Transcript

September 16, 2010 11:00 am ET


Alex Smith – President and CEO

Cary Turner – EVP and CFO

Kelley Buchhorn – Director, IR


Budd Bugatch – Raymond James

David Berman – Berman Capital

Anthony Chukumba – BB&T Capital Markets

Alan Rifkin – Bank of America-Merrill Lynch



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Good morning ladies and gentlemen. This is Pier 1 Imports quarterly conference call. (Operator Instructions) I would now like to introduce Mr. Alex Smith, President and Chief Executive Officer for Pier 1 Imports. Mr. Smith, you may begin.

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Alex Smith

Thanks, Liz. Good morning everyone and thanks for joining us today. Cary Turner, our Executive Vice President and Chief Financial Officer is with me, as is Kelley Buchhorn, our Director of Investor Relations. Cary will go with the results of our second quarter and later I will share with you our thoughts on both the quarter and the balance of the year. As always before we begin, I will ask Kelley to read you the Safe Harbor statement. Kelley?

Kelley Buchhorn

Thank you, Alex, and good morning everyone. Earlier today, we issued a press release, which included the detailed financial results for the second quarter ended August 28, 2010. In just a few moments, we will hear comments from Alex and Cary about those results followed by a brief question-and-answer period.

Before we begin, I need to remind you that certain comments made during this call may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, and can be identified by the use of words such as may, will, expect, anticipate, belief, and other similar words and phrases.

Our actual results and future financial condition may differ materially from those expressed in any such forward-looking statements as a result of many factors that may be outside of our control. Please refer to our SEC filings, including our Annual Report filed on Form 10-K for a complete discussion of the major risks and uncertainties that may affect our business.

The forward-looking statements made today are as of the date of this call, and we do not undertake any obligation to update our forward-looking statements. If you do not have a copy of today’s press release, you may obtain one, along with copies of prior press releases and all SEC filings by linking through to the Investor Relations page of our website

I would now like to turn the call over to Cary, who will provide the detailed results of our second quarter. Cary?

Cary Turner

Thank you, Kelley. Total sales for the second quarter increased 8.1% to $309.9 million from $286.7 million in the year ago quarter. Comparable store sales increased 11.2% for the quarter compared to a comparable store sales decline of 7.6% last year. The sales increase was primarily the result of an increase in conversion rate and average ticket for the quarter.

Traffic was up in August in the first half of June, and down slightly in late June and July as the summer clearance event was not repeated this year. Merchandise margins for the quarter were $180.7 million or 58.3% of sales over the $149.1 million or 52% of sales last year, a 630 basis point improvement. Merchandise margins continue to be positively impacted by significantly less clearance activity, reduced vendor and supply chain cost, and well-managed inventory levels.

Store occupancy cost were $66.3 million or 21.4% of sales, a $1.2 million decline from store occupancy cost of $67.5 million or 23.5% of sales last year. The decline in store occupancy cost were primarily attributable to favorable rent negotiations on a large number of stores, and the reduced store count this year, which were slightly offset by an increase in utility cost due to the very hot weather throughout the country this quarter.

Gross profit for the quarter, which is calculated by deducting store occupancy cost from merchandise margin, improved $32.9 million to $114.5 million or 36.9% of sales from $81.6 million or 28.5% of sales, an 840 basis points improvement over the second quarter of last year.

As detailed in the table in today’s press release, SG&A expenses totaled $94.3 million and consisted of $10.1 million in marketing cost, $70.5 million in payroll and $13.7 million in other G&A cost and other charges.

Administrative payroll increased $1.9 million over last year, primarily due to slight increases in salary and wages and management bonuses. Other relatively fixed expenses increased $2.5 million for the quarter, primarily related to favorable trends in the prior year for general insurance cost and foreign currency exchange rate gains that were not repeated this year.Overall, the increase in sales, improved merchandise margins and controlled expenses resulted in operating income for the quarter of $15.2 million, a $30.5 million improvement over the $15.3 million operating loss reported last year.Net income for the quarter was $14.4 million or $0.12 per share compared to a loss of $15.8 million or $0.17 per share reported last year.

For the first six months of the year, total sales increased 8.5% to $616.1 million from $567.8 million in the yearago period and comparable store sales increased 12.7% compared to a comparable store sales decline of 7.5% for the same period last year.Comp stores sales for the six month period were driven by increases in traffic, conversion rate and average ticket.

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