Pier 1 Imports, Inc. (PIR)

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Pier 1 Imports Inc. (PIR)

F3Q2011 Earnings Call Transcript

December 16, 2010 11:00 am ET


Alex Smith – President and CEO

Kelley Buchhorn – Director, IR

Cary Turner – EVP and CFO


Brian Nagel – Oppenheimer

Budd Bugatch – Raymond James

Brad Thomas – Keybanc Capital

Simeon Gutman – Credit Suisse

Alan Rifkin – Bank of America

Jennifer Milan – Sterne Agee

Anthony Chukumba – BB&T Capital



Good morning, ladies and gentlemen, this is The Pier 1 Imports quarterly conference call. At the request of Pier 1 Imports, today’s conference call is being recorded. All lines will be in listen-only mode.

I would now like to introduce Mr. Alex Smith, President and Chief Executive Officer for Pier 1 Imports. Mr. Smith, you may begin.

Alex Smith

Thank you, Kia. Good morning everyone and thanks for joining us today. Cary Turner, our Executive Vice President and Chief Financial Officer is with me today, as is Kelley Buchhorn, our Director of Investor Relations. Cary will go over the highlights of our third quarter and then later I will share our thoughts on the quarter, the balance of this year and some insights into next year. As always before we begin, I will ask Kelley to read to you the Safe Harbor statement. Kelley?

Kelley Buchhorn

Thank you, Alex and good morning, everyone. Earlier today, we issued a press release, which included the detailed financial results for the third quarter ended November 27, 2010. In just a few moments, we will hear comments from Alex and Cary about those results followed by a question-and-answer period.

Before we begin, I need to remind you that certain comments made during this call may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, and can be identified by the use of words such as may, will, expect, anticipate, belief, and other similar words and phrases.

Our actual results and future financial conditions may differ materially from those expressed in any such forward-looking statements as a result of many factors that may be outside of our control.

Please refer to our SEC filings, including our Annual Report filed on Form 10-K for a complete discussion of the major risks and uncertainties that may affect our business.

The forward-looking statements made today are as of the date of this call, and we do not undertake any obligation to update our forward-looking statements. If you do not have a copy of today’s press release, you may obtain one, along with copies of prior press releases and all SEC filings by linking through to the Investor Relations page of our Web site pier1.com.

I would now like to turn the call over to Cary, who will provide highlights of our results for the third quarter. Cary?

Cary Turner

Thank you, Kelley. As reported in this morning’s press release, total sales for the quarter increased 8.2% over the same period last year and comp store sales increased 10.2% for the quarter versus last year’s third quarter comp store sales increase of 13.7%. Increases in all metrics, traffic, conversion rate and average ticket continue to drive the sales increases.

Merchandise margins for the quarter increased $23.5 million to $208.5 million or 58.9% of sales, compared to 56.6% of sales last year, an increase of 230 basis points.

Merchandise margins continue to be positively impacted by significantly less clearance activity, reduced vendor and supply chain cost, and well managed inventory levels. Store occupancy costs for the quarter were 18.2% of sales compared to 19.9% of sales in the third quarter last year.

Store occupancy costs declined $800,000 this quarter compared to last year. This was primarily attributable to the reduced store count since the end of the third quarter last year coupled with the benefit from favorable rent negotiations last year and favorable negotiations on lease renewals on another 125 leased properties this year.

Gross profit for the quarter improved 410 basis points to a 40.7% of sales compared to 36.6% of sales last year.

As detailed in the table in today’s press release, SG&A expenses totaled $117.5 million for the quarter compared to $111.6 million last year. As a percentage of sales, SG&A expenses for the quarter declined 90 basis points to 33.2% of sales compared to last year’s 34.1% of sales for the same period. Although the company had planned increases in store payroll and marketing expenses during the quarter, overall SG&A expenses were effectively leveraged.

Operating income for the third quarter was $21.9 million or 6.2% of sales compared to last year’s third quarter operating income of $2.8 million or 0.8% of sales.

For the first nine months of the year, total sales increased 8.4% over the same period last year and comp store sales increased 11.8% compared to a comp store sale decline of 0.6% for the same period last year.

As stated earlier, comp store sales increases were driven by improvements in traffic, conversion rate and average ticket. At the end of the third quarter, sales per retail square foot for the trailing 12 months is $163, up from $150 per square foot a year ago.

Merchandise margins for the first nine months improved 420 basis points to 58.6% of sales compared to 54.4% of sales in the same period last year. Store occupancy costs declined $4.3 million to $195.9 million and were 20.2% of sales versus 22.4% of sales last year.

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