Ticket to Pennystock-ville

Is yet another home furnishings specialty retailer about to become a statistic?

Five months ago, Pier 1 Imports was making a hostile bid to acquire Cost Plus World Market. Now, it’s unlikely Pier 1 could acquire a one-way ticket to Palooka-ville. The only thing it’s acquiring is boatloads of bad news from the New York Stock Exchange.

Pier 1 closed Thursday (Nov. 20) at 38 cents a share. This is a price for a legacy retailer with a billion-five in annual sales? It’s more like the price we used to pay for a can of Campbell’s Soup when I was a kid. According to my better half, “There really is nothing you can buy in the supermarket for 38 cents a pound.” Anything at all? “Tomatoes in Mexico.”

Starting in 1962, Pier 1 pioneered the import and no-frills sale of wicker chairs, candles, placemats, decorative pillows and those room dividers made of strung beads. Sadly, the Sixties have gone – and much bigger retailers have overrun many of Pier 1’s defensive outposts. Now the question becomes how long its 1,100 stores can generate sufficient cash flow to stave off pernicious borrowing. Considering the chain hasn’t thrown off positive cash flow in years, that may be asking too much.

The marketplace is dealing tough slaps all around. And the stock price of Pier 1 – like that of many retailers – is being shorted six ways from Sunday. That’s a shame.

Pier 1 was making real strides in turning around its business, starting in 2007, such as cutting $160 million out of overhead. And cleaning up its merchandise mix bigtime. That’s why it felt good enough for president and ceo Alex Smith to push the stock-for-stock acquisition of its competitor last summer. On June 6, Pier 1 shares were trading at $7.10.

“We all have skin in this,” Smith said back in June, explaining that much of his compensation was based on the share price – and he would only champion a merger-acquisition that could increase the value of those shares.

Ouch.

At No. 28 in the HTT Top 50 Retailing Giants, with 2007 home textiles retail sales of $180 million, Pier 1 Imports is another customer the producers of home furnishings can’t bear to lose. And they might not – but the crush of economic woes rampant upon the land in the waning days of 2008 is only making the job that much tougher for this would-be contender.