Pier 1 earnings tide begins to ebb

Don Hogsett, June 23, 2003

Cooling off abruptly after a long string of earnings gains in the range of 30 percent or more as it completed a strong turnaround, Pier 1 Imports reported that first-quarter profits, while still strong, fell by 14.1 percent, to $19.1 million from $22.2 million a year ago, hampered by lower margins and higher costs.

Sales at the specialty home goods retailer rose by 4.8 percent, to $402.7 million from $384.4 million. But all of the gains came out of new stores, and same-store sales fell by 3.6 percent.

Putting profits under pressure was a threatening combination of weaker margins, rising costs and a persistently weak retail environment. Average gross margin thinned by 90 basis points, or nine-tenths of a percentage point, to 41.8 percent from 42.7 percent a year ago. With rising sales offsetting margin erosion, gross margin dollars improved by 2.6 percent, to $168.2 million from $164.0 million.

At the same time costs ratcheted higher by 40 basis points, or four-tenths of a percentage point, 31.2 percent from 30.8 percent the prior year. Measured in absolute dollars costs rose by 6.3 percent, or $7.4 million, to $125.8 million from $118.3 million.

Putting the bottom line under even more pressure, inventories climbed higher when expected sales failed to materialize. Stockpiles rose by 11.6 percent, to $338.5 million from $303.4 million.

Marvin Girouard, chairman and ceo, said results "reflected a more cautious consumer due to continuing weakness in the economy, international and political instability, as well as adverse weather conditions delaying the beginning of the important spring selling season. Despite these factors and tough sales comparisons to last year during the quarter, we are pleased to report that Pier 1's sales strengthened each month with higher traffic and average ticket transactions building since the fiscal year began March 2."

Pier 1 Imports Inc.

Qtr. 5/31 (x000) 2003 2002 % change
Sales $402,712 $384,429 4.8
Oper, income (EBIT) 30,258 34,929 -13.4
Net income 19,062 22,181 -14.1
Per share (diluted) 0.21 0.23 -8.7
Average gross margin 41.8% 42.7%
SG&A expenses 31.2% 30.8%

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