Losses Mount at Pier 1 Imports

By Staff -- Home Textiles Today, 12/18/2006 12:00:00 AM

Fort Worth, Texas — —

Fort Worth, Texas — With its costs soaring higher and margins shredded, Pier 1 Imports recorded a seventh straight quarterly loss, $72.7 million, more than 10 times the size of a year-before loss of $7.2 million. During seven straight quarterly losses, Pier 1 now has lost a total of $209 million.

Quarterly sales dropped off at a double-digit pace, by 11.8%, to $402.7 million from $456.7 million during the same quarter a year ago. Same-store sales fell even further, by 12.9%.

Causing a part of the quarter's loss was a costly campaign to draw customers back to its stores and work down its stockpiles through a combination of lower prices and stepped-up catalog and TV advertising.

Average gross margin crumbled by 570 basis points, or 5.7 percentage points, to 30.9% from 36.6% during the same quarter a year ago. Excluding other costs, merchandise margins alone eroded by 280 basis points, or 2.8 percentage points, the retailer said, “due to increased promotional and markdown activity.”

Doing more damage to the bottom line, when measured as a percentage of shrinking sales, operating costs soared higher by 1,160 basis points, or 11.6 percentage points, to 45.6% from 34.0% a year ago.

In addition to routine costs like salaries and merchandising, the retailer said the third-quarter's SG&A expenses included a $24.8 million non-cash charge for store-level asset impairment charges; and $1.9 million in other one-time costs stemming from the sale of its credit-card business and stock-based compensation.

In addition to the one-time charges, the retailer said, marketing costs jumped up to 9.5% of sales from 6.6% during the same period a year ago.

In one piece of good news, the aggressive promoting brought stockpiles down by 10.6%, or $46.4 million, to $392.4 million from $438.8 million last year.

Looking for a silver lining, chairman and ceo Marvin J. Girouard said, “Trends so far in December are better than the trends seen in October and November. Despite weak sales in home furnishings categories, early sales of our holiday merchandise have been encouraging.” Girouard told analysts Pier 1 will return to an “updated traditional” mix instead of “contemporary” looks.

Pier 1 Imports Inc.