Pier 1 Imports Inc. (PIR)
Q1 2010 Earnings Call
June 17, 2010 11:00 AM ET
Alex Smith – President and CEO
Kelley Buchhorn – Director, Investor Relations
Cary Turner – EVP and Chief Financial Officer
Brian Nagel – Oppenheimer
Budd Bugatch – Raymond James and Associates
Brad Thomas – KeyBanc Capital
Previous Statements by PIR
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Good morning, ladies and gentlemen. This is Pier 1 Imports quarterly conference call. At the request of Pier 1 Imports, today's conference call is being recorded. All lines will be in listen-only mode. I would now like to introduce Mr. Alex Smith, President and Chief Executive Officer for Pier 1 Imports. Mr. Smith, you may begin, sir.
Thank you, Sarah. Good morning everyone and thanks for joining us today. Cary Turner, our Executive Vice President and Chief Financial Officer is with me today as is our new Director of Investor Relations, Kelley Buchhorn. Kelley has been with Pier 1 Imports for 20 years. Congratulations Kelley. And we're delighted to have her in her new role. So Kelley, please get us started.
Thank you, Alex. Good morning everyone and thank you for joining us. Earlier today, we issued a press release which included the detailed financial results for the first quarter ended May 29, 2010. In just a few moments, Cary will discuss the first quarter financial results and Alex will follow with a more in-depth discussion about our business. We will end with 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, believe 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, pier1.com. I would now like to turn the call over to Cary who will provide the detailed results of our first quarter.
Thank you, Kelly. Earlier today, we reported net income of $7.7 million or $0.07 per share for the first quarter, compared to $29.3 million or $0.32 per share reported for the same period last year. Results for the first quarter last year included a $47.8 million gain on the convertible debt transactions and the receipt of $10 million from a litigation recovery.
Total sales for the first quarter increased 8.9% to $306.3 million from $281.1 million in the year-ago quarter. Comparable store sales increased 14.3% compared to a comparable store sales decline of 7.5% last year. The sales increase for the quarter was the result of an increase in store traffic, conversion rate and average ticket. Our Pier 1 Rewards card continued to do well and was 25.9% of total U.S. sales for the quarter, versus 25.2% of total U.S. sales last year.
Merchandise margins for the quarter were $179.6 million or 58.6% of sales, a 440-basis point improvement over $152.3 million or 54.2% of sales reported for the same period last year. The improvement in merchandise margins continued due to decreased clearance activity, reduced vendor and supply chain cost and well-managed inventory levels.
Store occupancy cost of $65.2 million declined from $67.5 million last year, due to the reduced store count and negotiated rental rate reductions with our landlords in existing stores. Gross profit for the quarter calculated by deducting store occupancy costs from merchandise margin, improved $29.6 million to $114.4 million or 37.4% of sales from $84.8 million or 30.2% of sales in the first quarter of last year.
As detailed in today's press release, first quarter SG&A expenses totaled $101.1 million. During the period, SG&A consisted primarily of $13.6 million in marketing costs, $69.6 million in payroll and $17.9 million in other G&A costs. SG&A expenses for the quarter included $1.2 million in special charges relating to lease termination and other costs, offset by a gain of $1.7 million resulting primarily from the company's sale of its distribution center near Chicago.
Last year, the company recorded $7.1 million in special charges resulting primarily from lease termination costs. As a percentage of sales, ongoing SG&A costs showed a 180-basis point improvement compared to last year as they declined to 33.2% of sales from 35.0% of sales last year.
Overall, the increase in sales, improved merchandise margins and controlled expenses resulting in operating income for the quarter of $8.3 million, a $35 million improvement over the $26.7 million operating loss reported last year. Inventory at the end of the first quarter was $303.2 million or $37 per retail square foot compared to $294.2 million or $35 per square foot last year.