Sales up but profits down at Pier 1

FORT WORTH, TEXAS — With margins thinning and costs rising, fourth-quarter profits fell by more than 10 percent at Pier 1 Imports, even though sales at the home furnishings specialist climbed almost 7 percent.

After moving on a fast track in recent years, rebounding from earlier weakness, earnings growth stalled during the closing quarter and for all of last year, checked in part by a $1.6 million after-tax charge stemming from the settlement of labor litigation and related legal costs. During the holiday quarter, profits tumbled 10.6 percent, to $48.3 million, or 53 cents a share, from $54 million, or 57 cents a share.

Even without the one-time charge stemming from the lawsuit, earnings would have declined by 3.5 percent, to 55 cents a share from 57 cents a year ago, the retailer reported.

Helped by new store openings, sales during the holiday season rose 6.6 percent, to $555.3 million from $521 million a year ago. But the crucial gauge of same-store sales weakened by 2.7 percent.

Tugging at the bottom line was a combination of contracting margins and rising costs. Average gross margin narrowed by 220 basis points, or 2.2 percentage points, to 42.5 percent from 44.7 percent a year ago. At the same time, when measured as a percentage of sales, costs rose 50 basis points, or one half of a percentage points, to 26.5 percent from 26 percent the preceding year.

For all of last year, earnings, including the litigation charge, fell by 8.8 percent, to $118 million from $129.4 million. Sales increased by 6.5 percent, to $1.9 billion from $1.8 billion, but same-store sales thinned by 2.2 percent.

Marvin Girouard, chairman and CEO, said, "Fiscal year 2004 was a challenging year for the company. We achieved record sales of almost $1.9 billion. However, comp store sales declined by 2.2 percent after 11 consecutive years of comparable store sales gains.

"Despite the disappointing comp store sales results last year, the company generated strong operational cash flow, opened 120 new Pier 1 stores, paid increased cash dividends, repurchased Pier 1 common stock and ended the fiscal year with cash and cash equivalent investments of $225 million."

Girouard said Pier 1 continues to project comp store sales gains for March in the range of 2 to 4 percent. "We are encouraged by increased traffic and conversions in stores," said Girouard, who also forecast same-store increases for the first quarter of 2 to 4 percent.

"Based on current sales projections, diluted earnings per share for the first quarter are expected to be in a range of 21 to 24 cents per share, up from 21 cents in the prior-year period," Girouard added.