Pier 1 Sees Large Profit Drop

Fort Worth, Texas — Hurt by sharply eroding margins and sliding same-store sales, third quarter profits at Pier 1 Imports Inc. plummeted 39.5 percent, to $19.5 million from $32.2 million last year.

Buoyed by continued expansion, overall sales at the home decorating specialist inched up 1.1 percent, to $487.7 million from $482.4 million a year ago. But the acid-test measure of same-store sales continued to decline, falling 6.3 percent. December comps, the retailer said, are trending in the negative mid-single-digits, and the company is now forecasting a fourth quarter drop in the same range.

Putting earnings under heavy pressure, in addition to sliding same-store sales, average gross margin was throttled down 390 basis points, or 3.9 percentage points, to 39.2 percent from 43.1 percent the preceding year, hurt by deep discounting.

Operating costs held relatively steady at 29.9 percent, up slightly from 29.8 percent a year ago. In another modest prop to the bottom line, inventories remained well controlled, declining 1.8 percent, to $397 million from $404.2 million last year.

While cash on hand slipped 33 percent, to $119.7 million from $178.7 million, there was enough to continue an ongoing stock repurchase program, and by the end of the third quarter the company had bought back 3 million shares at a cost of $54.3 million.

In a major marquee change, the company changed the name of its Cargokids unit to Pier 1 Kids, said Girouard. “After testing a few stores with the new name, we experienced improved sales. Although the name Cargo had been around for over 20 years, we believe that Pier 1 has stronger brand recognition and are confident that the time is appropriate to convert all remaining stores to Pier 1 Kids by March 2005,” he said.