New Management Gets Pier 1 Imports Back On Track

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Like many retailers, Pier 1 Imports was hit hard by the bursting of the housing and consumer credit bubbles. The chain posted losses each year from 2006 to 2008.

Since then, this retailer of imported furniture and household accessories has produced 13 straight quarters of growth in overall revenue, same-store sales and operating margins. In so doing,Pier 1 ( PIR ) has rung up "among the best same-store sales not only in home furnishings, but in all of hard-line retail," said Barclays analyst Alan Rifkin.

In the third quarter, reported in mid-December, same-store sales grew by 7.9%. This extended the pattern of market share gains in home furnishings. Total sales increased by 10.9% to $424.5 million.

Key to the turnaround, according to industry trackers, was the arrival fromTJX Cos. ( TJX ) in 2007 of new CEO Alex Smith.

Back then, some wondered if Pier 1's time had passed. Was it simply a relic of the counterculture, catering to consumers craving novelty in decor as well as lifestyle?

"Pier 1 to most outsiders looks like a lost cause," wrote one analyst in April 2009.

Staffing Up

Smith quickly understood that merchandise selection would be the key to survival. In a classic case of staffing up to do a job better, he more than doubled the number of Pier 1's buyers. This gave the chain more expertise in what was going on in subsectors of the furnishings market, notes Joan Storms, analyst with Wedbush Securities.

More funky than fancy, Pier 1 offers such items as scented candles and seven-foot, hand-carved zebras from Indonesia.

Most of its goods are sourced from China, Malaysia, Vietnam and other Asian locales.

Pier 1 stores, numbering 1,061 as of the end of the third quarter, also sell more pedestrian domestic wares, like pillows, lamps and salad bowls.

The more distinctive merchandise is a bit off the beaten track. That's a good thing, notes analyst Brad Thomas with KeyBanc.

"What Pier 1 offers is items that really spruce up a room," he said. Pier 1 customers are looking for "fun, unique, whimsical items." For that reason: "It's very important you get the fashion element right."

With the help of all those new buyers, CEO Smith seems to have gotten the fashion element right.

"The merchandise will always be the sales driver," said Storms.

Smith took steps to make sure all those imported items landed in the right stores at the right time.

Different outlets have established unique buying patterns and tastes over time. It is the job of planning and allocation pros to make sure the goods coming in from Asia are swiftly dispatched to the proper outlets. So Smith beefed up staffing in planning and allocation. "They brought in new talent," said Storms.

Pier 1's core shoppers are educated women buying for households whose income might range from $40,000 to $60,000, says Barclays' Rifkin. These shoppers are often buying out of want rather than need. They might opt for "a cool set of wine glasses" even though they already have more than enough, he noted. Hence, the central importance of merchandise that stimulates impulse buying.

Increased activity in housing markets has also helped. New-home buyers as well as foreclosed homeowners moving to rented facilities are potential customers.

More generally, Pier 1 has gained as consumers, many of whom had lightened onerous debt levels, began spending again.

"There is a closer correlation to consumer confidence than to housing," said Storms.

Pier 1 can't control the macroeconomics of housing. But it is trying to do a better job controlling its store environments. Store investments lagged during the recent stretch of down years. "They really underinvested in the tough years," said Thomas. More recently, Pier 1 has paid more attention to the physical state of its stores.

One area of focus has been lighting. These investments, said Thomas, are "yielding good returns."

On The Web

Pier 1 has also improved its online commerce efforts. Though an earlier effort to sell online foundered, Pier 1 has fared better of late.

CEO Smith told analysts in December that Pier1.com is hosting nearly 1 million visitors per month.

Especially encouraging is the fact that 35% customers who order online like to pick up their purchases at local stores. That's important because these customers tend to add to their purchases once they're in the store.

Management does not break out online sales totals. They are growing, but it's clear they remain a small part of the business. This is evidenced by management's stated goal of building online sales to 10% of total revenue by 2016.

That's a nice kicker, but brick and mortar business sales counts most. Retailers live and die by their sales-per-square-foot performance.

Pier 1 sales per square foot bottomed in 2008-09 at $152. Since then, that number has risen steadily and last quarter stood at $194.

That's still well off the high of $235 per square foot achieved in 2002. That's why Smith contends that Pier 1 has "plenty of room to expand as we continue to finesse our assortments and in-store experience."

KeyBanc analyst Thomas thinks Pier 1 can top its historic highs.

"We see the potential for Pier 1 to get to $250 (sales per square foot), if not higher. That'll take a few years," he said. But he notes that such progress "requires a continuing housing recovery."



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.



This article appears in: Investing , Investing Ideas

Referenced Stocks: PIR , TJX

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