Pier 1 Imports Inc.

 

Pier 1 is a specialty importer and retailer of home furnishings, accessories, and decorations.  The company has a history of successful turnarounds due in part to its loyal customer base.  Pier 1 is again in the relatively early stages of a turnaround largely predicated on lower inventory levels, better merchandise selections, closures of unprofitable stores, and improved profitability.  It is possible the challenging retail environment might be too difficult to overcome but it is encouraging they have been able to improve results in this challenging environment.  I am looking for continued execution with steady improvements in profitability although their FY18 guidance implies more moderate improvements at least for now.  A continued improving economy with improved consumer confidence might help although continued penetration of online competitors such as Wayfair presents headwinds although Pier 1 is adapting with increasing its online sales and its "omni-channel" strategy which involves harmonizing supply chain management of its online and bricks-and-mortar stores.  

 

Ests:    4Q18   1Q19   FY18    FY19

Revs    537.6   405.6   1.82b   1.8b

EPS      .19       -.06      .20       .20

 

P=3.46, Div .28, div HALTED, gross cash/sh=1.69, net debt/cap=19%, NWC>net debt by 2.12/sh, TTM EPS .21, P/E 16X but mgmt. sees a loss in FY19 vs Est .20

 

4Q18   .21 vs .33, incl .04 from extra week, est .19 down from .38, FY EPS .21 vs .44

  • Revs -3.1% to 512.2m incl ~27.5m due to extra week, GM 37% vs 39.2%
  • Comps -7.5%, e-commerce sales 25% vs 20%,
  • Continued investments in business expected to drive a loss in FY19 (est EPS 0.20) but expect growth and profitability in FY20 and FY21
  • Opened 1 store, closed 9, closed 15 in FY18  
  • Halted dividend to conserve ~22m in cash flow in FY19
  • NWC-debt shrunk 30m or 14% y/y, CFO shrunk 50m or 43% y/y, CFO-CapEx (FCF) shrunk to 12.6m, inventories down 53m or 13% y/y
  • Exited my position after hours, total loss on PIR was 48% representing a 1.2% loss of my portfolio's initial capital.

3Q18   .09 vs .22, est. .11 down from .20

  • Revs -1.4% to 469.2m (est 466.7), comps -0.7% with est impact 100bps from hurricanes
  • GM 37.7% vs 41.3% due to higher promotional activity, inventories -12.7% y/y
  • E-commerce 26% vs 20%, Closed 1 store, 8 YTD, expects to close 17 in FY18 (9 in 4Q)
  • Completed strategic review and implementing a 3-year plan to improve the business, see opportunity to be more efficient with working capital, lower inventories
  • October sales did not bounce back as they expected, November improved as they intensified promotions, early December is weak
  • Guidance: FY18 EPS .17-.25 down from .38-.48 due to current tone and volatility in the first 2 weeks of December, implies 4Q .17-.25, est .38
  • Current results continue to be disappointing, balance sheet and liquidity have not deteriorated from a year ago despite weaker earnings, it’s tempting to pull the plug but there’s still value in the brand and hopefully this strategic plan will bear some fruit, current earnings are below potential, shareholder activism is also not off the table, very attractive dividend yield is sustainable (for now), pace of closing unprofitable stores is not fast enough with less than 2% of stores closing this year.

2Q18 (.05) vs (.05), est (.05)

  • Revs +0.4% to 407.6m, comps +1.8%, GM 34.4% vs 35.7%
  • Closed 4 stores, expects to close 20-25 in FY18
  • E-commerce 27% vs 20%
  • Guidance: impacted by hurricanes, 3Q comps (2%)-flat, Revs (3%)-(1%), GAAP EPS .08-.14 (didn’t give adjusted so assuming no difference), 4Q compss flat-+2%, Revs +5-7%, EPS .36-.46, FY EPS .38-.48

1Q18   (.04) vs (.07), est (.05)

  • Revs -2.1% to 409.5m, comps -0.2%, GM 37.0% vs 35.6%
  • Merchandise margin improved 300bps to 58.6% due to improved supply chain and lower clearance, top line impacted by weaker than expected outdoor sales
  • Closed 3 stores, opened 1
  • E-commerce sales +23% to 99.3m, 24% of sales vs 19%
  • Guidance: 2Q comps flat to +2%, EPS (.08)-(.04) vs (.05) and est (.03), FY comps +1-2%, EPS .46-.52, unchanged
  • Stock selling off after hours due to top line miss, company has plenty of liquidity for the near term, profitability continues to improve, multiple has come down a lot with the stock and could make the company a target of activists or private equity.    

4Q17   .34 vs .23, est .33

  • Revs -2.6% to 528.4m, comps +0.2%, GM 39.2% vs 36.3%, adj OM 9.2% vs 6.2%
  • GP +5.1% y/y, OpInc +45% y/y
  • Merchandise margin improved 420bps to 56.7% due to decreased clearance, more effective promotional strategy, and better supply chain management.
  • Closed 4 stores, ending with 1018, expects to close 20-25 in FY18
  • Net debt improved ~40m y/y to 46m, non-cash NWC 294.5m
  • FY18 growth initiatives include merchandising, marketing, supply chain, and real estate
  • FY18 guidance includes +1-2% comps, expanding GP and OpInc, includes 53 weeks vs 52 benefiting EPS ~.02, 1Q EPS (.07)     to (.03), FY EPS .46-.52 (est .48)
  • Results and guidance are ok, largely in line with expectations but it appears their recovery is slowing, there should be more room for improvement and operating leverage but the current environment (declining mall traffic, shifts to online sales). P/E of 16X is reasonable unless their results start to deteriorate, FY17 ROAE=4.3%