If you're surprised to learn that Pier 1 Imports (PIR) - Get Report was among the best-performing stocks of the first quarter, you're not alone. I've been following the housewares and furniture retailer for as long as I've been analyzing stocks, and have known the retailer to be a serial disappointer. Reflecting its dismal track record, just four of 21 analysts who follow the company rate Pier 1 a buy.

Nevertheless, Pier 1 is up 30% year to date as of Tuesday's closing price of $11.39. Even so, the stock is closer to its 52-week low of $8.50 than to its high of $18.50. With that in mind, should investors put Pier 1 on their shopping list?

In other words,

should I do it?

The company is scheduled to post earnings for its fiscal fourth quarter (ended Feb. 28) before the open on Thursday. The consensus analyst estimate is for the retailer to earn just a penny per share. Management already said last month that same-store sales fell 3.2% during the quarter and overall sales grew just 1%. Pier 1 also warned that merchandise margins would fall 4 percentage points from the previous year because of higher markdowns and promotional activity.

The company also will deliver March sales results Thursday. Analysts are looking for just flat to low-single-digit same-store sales growth, against an easy comparison of down 18.2% the prior year. The one positive about the increased promotions is that inventory levels should be cleared out heading into fiscal 2007.

Still, the consensus estimate is for Pier 1 to earn just 7 cents a share in fiscal 2007, a far cry from the $1.31 the company earned in 2004. That values the company at 166 times expected future earnings, compared with just 20 times for its closest competitor

Cost Plus

(CPWM)

. I'll be the first to admit that number is skewed, but Cost Plus is also cheaper on a price-to-book and price-to-sales basis.

It's worth noting that Cost Plus gained 11% Tuesday on leveraged buyout speculation, after a foreign investor disclosed a new 9.9% stake. Both Pier 1 and Cost Plus lease the majority of their stores, so any buyers would need to be interested in turning the core businesses around, as opposed to the real estate land grab in recent quarters, where retailers like

Toys R Us

were picked up by private investors.

Seasons of Change

In its own effort to turn business around, Pier 1 is currently in the midst of revamping its merchandise assortment. The retailer sent out about 10 million spring catalogs in March, highlighting its new "Modern Craftsman" line, which it will supplement with television and magazine ads this spring. While generally focusing on lower-ticket items like lamps, pictures and tableware, the company is attempting to move up the retail food chain and offer more high-ticket furniture items. In total, Pier 1 sells about 4,000 items across its 1,150 North American locations.

It's not the first time Pier One has tried to reinvent itself. It has always catered to the younger crowd, with modern styles based on global designs. Even so, the company also has gone through its fair share of spokespersons -- from Kirstie Alley to the stars of "Queer Eye for the Straight Guy." Even so, Pier 1 has just not been able to find a sustainable trend to capitalize upon.

I've read through several quarterly previews in sell-side analyst notes, and the most

upbeat

comment I found about the new product line was from Colin McGranahan of Sanford C. Bernstein, who said: "Despite encouraging signs in traffic, conversion looks to be an issue."

My own recent trip to two Manhattan locations confirmed that Pier 1 is even discounting its new merchandise.

In sum, I believe that readers should take a pass here: The stock has just run too much to warrant buying ahead of Thursday's earnings report. Even with some early success expected for the company's new merchandise offerings, Pier 1 is barely expected to scratch out a profit in fiscal 2007.

As a result, Pier 1's 10-cent quarterly dividend, indicating an industry-high 3.5% yield, could be at risk. While the company has maintained this payout rate for nine quarters, management has not delivered positive same-store sales growth over that period or earned enough to cover the dividend for the past three quarters. If Pier 1 does in fact fail to cover just one quarterly dividend payment with its

full-year

expected fiscal 2007 earnings, the retailer may have to cut its payout in the coming quarters. (Investors at the close of trading on April 28 will qualify for the May 17 payment.)

All that said, there is so much private capital out there waiting to be deployed, Pier 1's near-term downside is also likely to be limited. With that in mind, I'd reconsider my stance on the retailer following any pullback into the single digits.

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David Peltier is a research associate at TheStreet.com In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Peltier appreciates your feedback;

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