Updated from 1:29 p.m. EDT

Shares of Pier 1 Imports ( PIR) were tanking after the company said April same-store sales are trending below a previous forecast because of lower traffic and could fall from a year ago.

The news put into doubt analysts' perceptions that sales at the company were picking up after a disappointing holiday season.

Pier 1 had initially expected same-store sales to rise 3% to 5% in the month ended May 1 but now expects results to be flat to down 2%. Same-store sales in April 2003 fell 2.6%.

The company expects total sales in the month to be up 8% to 10%, however. The company will release actual figures on May 6.

"After a strong start to the month, sales in April slowed after the Easter weekend and customer traffic has been soft in the two weeks that followed," the company said in a statement, adding that it would "aggressively" control costs to maximize profit, given the estimated shortfall.

Rob Wilson, an analyst at Tiburon Research Group, wasn't surprised at the company's announcement, saying that traffic declines have been a constant at the company of late.

He also said he thinks it's hard for retailers to predict sales levels when there's a holiday calendar shift, as was the case for Easter this year. The holiday fell in the March sales period, compared with being in April in 2003.

Sales predictions are "probably the hardest thing ever to do with a calendar shift," said Wilson. "I think a lot of the time retailers get it wrong. They saw how successful they were in January, February and March and tend to think it's them rather than the macro environment. They get 'irrational exuberance.'"

As a result, Wilson predicted that for most retailers "April is going to be a slap in the face."

SunTrust analyst David Magee said Pier 1's announcement is further proof that customers are visiting stores less often. "Though the stores continue to be well-stocked and exciting, in our opinion, the necessary traffic doesn't seem to be there," Magee wrote in a Tuesday research note.

The analyst also noted that feedback has been mixed from the company's new advertising campaign featuring Queer Eye for the Straight Guy host Thom Filicia.

Magee has a neutral rating on shares of Pier 1 and said he could see the stock reaching $19 to $20 after Tuesday's news.

Shares of Pier 1 were lately dropping $2.64, or 11.6%, at $20.11.

As a result, Magee lowered his full-year earnings estimates on Pier 1 to $1.44 a share from $1.47 a share in 2004 and to $1.67 from $1.70 a share in 2005. (SunTrust has done investment banking for Pier 1 in the last 12 months.)

Analysts had lately been bullish on Pier 1, though, in part because the company reported two consecutive months of positive same-store sales. In March, the company had a 3.5% increase, and in February, same-store sales rose 3.3%.

In contrast, the holiday season was generally disappointing. The company posted a 4.9% decline in December and a 2.9% decrease in January.

Wedbush Morgan analyst Joan Storms had said in an April 19 research note that she was very optimistic on the company, citing new merchandising and marketing programs. She had also said that the "all important" traffic and same-store sales results had been improving.

"The company has the easiest comps in the group and the new initiatives appear to be working and should build over time translating to some good momentum for the second half of 2004," said Storms. (Wedbush Morgan makes a market in Pier 1 securities.)

A telephone call to Storms was not immediately returned.

Wilson, however, thinks Pier 1 became too optimistic about its full-year expectations on its April 1 fourth-quarter earnings call even though profit in the quarter dropped 10% from prior-year levels and same-store sales fell 2.7%. Still, Pier 1 had forecast first-quarter and full-year 2004 within range of analysts' forecast.

At that time, Wilson lowered his rating on the company to hold from buy, citing a decline in fourth-quarter merchandise margins and a decline in profitability at the company's credit card division. Merchandise margins fell 130 basis points in the fourth quarter, which he said was "shocking," considering margins increased in most of the last seven quarters. Negative same-store sales and lower merchandise margins do not bode well, he added.

The analyst also expressed concern over the company's new marketing campaign. "It should be remembered that Mr. Filicia has been shopping Pier 1 stores on the Queer Eye show for quite some time now. Maybe the market is overplaying the impact of his commercials? We believe that to be the case," Wilson wrote in an April 1 research note. (Tiburon does not do investment banking.)

Wilson said that based on Tuesday's announcement he is concerned in the short term for the company and he thinks first-quarter and second-quarter results could miss analysts' estimates, which call for earnings of 23 cents a share in each quarter. The consensus is for $1.49 in a year.

But new merchandise lines this summer could boost sales, Wilson said. The company has plans for six new merchandise introductions in 2004. Wilson also cited the company's incentive for a 15% discount off initial purchases made with Pier 1's credit card, compared to a 10% discount offered in 2003.

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