Updated from 10:13 a.m. EDT

Pier 1 Imports

(PIR) - Get Report

appealed for patience from shareholders after it reported a sharply wider first-quarter loss on Thursday, saying customers need time to adjust to a design shift in its merchandise.

Meanwhile, the possibility of a buyout continues to loom at the struggling home-furnishings chain. On a conference call following its first-quarter report, the retailer's management made no mention of its exploration of "strategic alternatives" that it announced in May after reporting continued sales declines.

"They said when they announced the review that they didn't plan to update investors during the process," notes Colin McGranahan, analyst with Sanford C. Bernstein.

Still, investors' patience may be wearing thin as the retailer's results continue to be dismal. The company reported Thursday that its first-quarter loss swelled to $23.2 million, or 27 cents a share, from $12.5 million, or 14 cents a share, a year earlier. Minus a penny a share attributed to discontinued operations, the chain recorded a loss of 26 cents a share, which matched Thomson First Call's mean analyst estimate.

Shares of Pier 1 recently were down 47 cents, or 5.6%, to $7.93.

In March, Pier 1 launched a brand-repositioning campaign, featuring its new line of contemporary merchandise dubbed "Modern Craftsman." The company said Thursday that "customer traffic remained weak" and "it will take time to attract new customers and inform our existing customers of the significant changes in our merchandise assortment."

Total first-quarter sales dropped 3.6% to $376.1 million, and same-store sales fell 6.6% from the same quarter last year. For June, the retailer expects same-store sales to worsen into the negative low- to mid-teens range.

While its merchandise margins improved to 53.8% from last year's 53.2%, store occupancy costs increased by $5.1 million and selling, general and administrative costs grew to 39.2% of sales from 35.9%.

On the call, Pier 1's chairman and chief executive, Marvin Girouard, called the performance a disappointment, but he defended the company's strategy, saying it needs more time to gain traction with consumers.

"It's not like we're sitting around with our heads in the sand," Girouard said.

In explaining the disappointment, Girouard said economic headwinds like high gas prices and rising interest rates are weighing on middle-income families, the traditional Pier 1 customer base. Also, he said competitive forces from big-box retailers like

Wal-Mart

(WMT) - Get Report

and

Target

(TGT) - Get Report

, home-improvement chains like

Home Depot

(HD) - Get Report

and

Lowe's

(LOW) - Get Report

and high-end home-furnishings chains moving down market, like

Williams-Sonoma

(WSM) - Get Report

have intensified.

In an effort to thrive in its shifting environment, Pier 1 has executed a dramatic repositioning of its merchandise, making its product line more upscale to compete with chains like

Restoration Hardware

( RSTO),

Crate & Barrel

and Williams-Sonoma's

Pottery Barn

.

"This merchandise is different than customers are used to seeing our stores," Girouard said. "It will take time for shoppers to adjust to these changes."

In addition to product changes, the company is making changes to its real estate portfolio, closing underperforming locations and opening new ones. Currently, it operates over 1,000 stores. For fiscal 2007, the company plans to open 35 new stores, instead of its previously announced plan to open 40. It plans to close 45 to 50 existing stores instead of 30.

"It sounds like the board

of directors is looking at options and everything is on the table," says McGranahan.

Meanwhile, Jakup a Dul Jacobsen, the Danish investor who disclosed a stake in

Linens 'n Things

before it agreed to be acquired by a private equity group, remains a passive investor at Pier 1 with a 10% stake in the company, although he did buy the company's U.K.-based operations in March for about $15 million. Observers have speculated that the European retail magnate and chairman of an Iceland-based firm called Lagerinn ehf may move to take control of Pier 1 and extend his reach in the U.S. market.