Pier 1 Imports, Inc. (PIR)

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Industry: Consumer Services
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Pier 1 Imports (PIR)

Q1 2012 Earnings Call

June 16, 2011 11:00 am ET

Executives

Alexander Smith - Chief Executive Officer, President, Director and Member of Executive Committee

Charles Turner - Chief Financial Officer, Executive Vice President of Finance and Treasurer

Kelley Buchhorn -

Analysts

Alan Rifkin

Thomas McConville

Simeon Gutman - Crédit Suisse AG

Bradley Thomas - KeyBanc Capital Markets Inc.

Anthony Chukumba - BB&T Capital Markets

Brian Nagel - Oppenheimer & Co. Inc.

Presentation

Operator

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

Alexander Smith

Thank you, Sarah. 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. As always, before we begin I will ask Kelley to read you the Safe Harbor Statement. Kelley?

Kelley Buchhorn

Thank you, Alex, and good morning, everyone. Prior to market open today, we issued a press release which included the detailed financial results for the first quarter ended May 28, 2011. In just a few moments, we will hear comments from Alex and Cary about those results, followed by a brief 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, believe 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 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 website, pier1.com.

I would now like to turn the call over to Cary, who will provide the highlights and an overview of our first quarter financial results. Cary?

Charles Turner

Thank you, Kelley. As reported in this morning's press release, increases in store traffic, conversion rate and average ticket were the key drivers contributing to our top line sales growth for the quarter. Total sales increased 9.3% for the quarter over the same period last year, and comp-store sales increased 10.2% for the quarter, on top of last year's 14.3% increase for the same period.

On a trailing 12-month basis, sales per retail square foot were $171 for the quarter, up from $155 per retail square foot at the end of the first quarter of last year.

Merchandise margins are at a historical high and, for the quarter, increased 120 basis points as a percentage of sales to 59.8% of sales compared to 58.6% of sales in the first quarter of last year. Merchandise margins continue to be positively impacted by strong input margins, controlled supply-chain costs and well-managed inventory levels.

Store occupancy costs for the first quarter were $65.9 million or 19.7% of sales, a decline of 160 basis points as a percentage of sales from last year. Rent expense was relatively flat, and repairs and maintenance costs and utilities increased slightly over last year's first quarter.

Gross profit for the quarter improved 270 basis points to 40.1% of sales compared to 37.4% of sales last year.

SG&A expenses were leveraged and decreased 40 basis points as a percentage of sales compared to the first quarter last year. As you can see in the SG&A table detailed in today's press release, both variable and relatively fixed SG&A costs were leveraged. We continue to effectively manage our expenses with the ongoing needs of the business.

Operating income for the first quarter improved to $19.9 million or 5.9% of sales compared to last year's first quarter operating income of $8.3 million or 2.7% of sales. Sales and merchandise margin increases, coupled with the company's ability to leverage expenses, resulted in the improvement in operating income.

The company's net operating loss federal tax carryforward was fully utilized by the end of last year. The company's effective tax rate in the first quarter of this year was 35%, and going forward for the remainder of the year, the effective tax rate will be in a range of 35% to 37%.

Earnings per share for the first quarter of this year was $0.12 per share compared to $0.07 per share last year.

Inventory at the end of the first quarter was $315.1 million, up 3.9% over the end of the first quarter last year. Management continues to strategically manage its inventory purchases and monitor its inventory levels to keep them in line with consumer demand.

Cash and cash equivalents were $304 million at the end of the first quarter, a $99.2 million increase over last year's balance of $204.8 million for the same period and up slightly from the end of last year.

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