Is the weather to blame for Pier 1's performance?

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Bobby Raines 04/14/2014

The weather… sure it's nice now, but it was pretty rough for most of the first quarter. It was brutally cold and snowy in some parts of the country, while other parts of the country dealt with heavy rain.

There was no lack of debate in economic circles about whether or not atmospheric conditions were having an effect on a variety of things like consumer spending, retail sales and unemployment.

The fun thing about having these debates is that eventually some data gets released that shows who was right and who was wrong.  In this case, the side that claimed the weather was hurting things seems to be winning. Vehicle sales in March rose from February's levels. The average workweek was longer in March and new unemployment claims recently hit a seven-year low.

That's great news for those of us who thought the weather was holding things back, but it's not great news for companies who have to report first quarter earnings over the next couple of weeks. I'm curious to see how the market reacts to companies blaming the weather. I do believe that the unusually cold weather that blanketed the country for much of the first quarter had a literal chilling effect on the economy, but companies have use the weather before in cases where it made less sense .

An early test case for the market's reaction could be Pier 1 Imports ( PIR ).

The home furnishings and decorations importer reported the results of its fourth fiscal quarter, which ended March 1, before the market opened on April 10. Pier 1 earned 41 cents per share on net sales of $515.8 million. That compares to estimates for 41 cents per share on $412.76 million in sales. That reads like an in line report, but analysts dialed back their forecasts when the company cut its own guidance back in February.

Alex Smith, the company's chairman and CEO, said snowstorms "impacted approximately two-thirds of our selling days in a many of our key markets." That helps explain the 4.6% drop in same store sales the company saw compared to the year-ago period.

The company also announced a $200 million share repurchase program which will take effect as soon as the current program, which has $5.8 million remaining, expires.

Looking forward, the company said it expects to earn between $1.16 and $1.24 per share for fiscal 2015. That compares to estimates for $1.23, which puts the company a little lower than Wall Street usually likes, but the stock rose in premarket trading and opened higher although it ended up closing down 0.11% on the day.  That doesn't seem like a huge win, but on a day when the broader market was down 2%, the loss of a couple of pennies doesn't seem so bad. PIR's sharp drop the next day could be cause for concern though. That may be a signal that the market soured on the weather excuse after it had a little time to think about it.

If you're willing to accept that the weather has been holding the company back, and now that warmer times are here the company will soar, consider a June 14/16 bull-put credit spread for a credit of about 20 cents. That's an 11.1% return, or 45.57% on an annualized basis (for comparison purposes only) and the stock has to fall about 9% to cause a problem.


Chart courtesy of stockcharts.com

If you think the company is using the weather as excuse to deflect blame for poor performance, consider a June 19/22 bear-call spread for a credit of 35 cents. That's good for a 13.21% return, or 54.17% on an annualized basis (for comparison purposes only). This position will return a full profit so long as the stock doesn't rise by more than about 8% between now and June expiration.




The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Originally published on InvestorsObserver.com


This article appears in: Investing , Options

Referenced Stocks: PIR

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