Pier 1 Imports Inc. consists of a chain of retail stores operating under the names `Pier 1 Imports` and `The Pier` selling a wide variety of furniture decorative home furnishings dining and kitchen goods accessories and other specialty items for the home. Additionally the company through certain subsidiaries operates stores in the United Kingdom under the name `The Pier.` The company supplies merchandise and licenses the Pier 1 name to Sears Mexico and Sears Puerto Rico. Pier 1 Imports Inc. has a market cap of $317.6 million; its shares were traded at around $3.51 with and P/S ratio of 0.2.
Highlight of Business Operations:Comparable store sales during the quarter and year-to-date periods declined 7.6% and 7.5%, respectively, which can be attributed to reductions in traffic related to the declines in the overall economic environment. Without the effects of Canadian currency conversion rates, the decline in comparable store sales during the fiscal quarter and year-to-date periods would have been 6.9% and 6.5%, respectively.
Merchandise margins were 52.0% for the second quarter of fiscal 2010 and 53.1% for the year-to-date period, compared to 49.3% and 50.3% for the same periods in the prior year. The increase in merchandise margins was the direct result of reduced markdown activity and strong input margins. Merchandise margins in the second quarter continued to benefit from supply chain efficiencies, such as lower fuel, transportation and labor costs, when compared to the same period last year. The Company continued to be cautious about its inventory purchases and successfully executed a plan to control the timing and level of its inventory, resulting in a decrease in inventory of $42.8 million when compared to the end of the second quarter of fiscal 2009. In addition, the Companys close management of its inventory levels required less clearance activity in order to sell through excess inventory, allowing the Company to shorten its semi-annual clearance sale by two weeks. The Company expects to experience a similar shortening of the January clearance sale and as a result expects to continue to see improvements in merchandise margins on a year over year basis.
During the first six months of fiscal 2010 the Company was able to restructure its long-term debt, improving its balance sheet and overall liquidity. Through the repurchase of approximately half of its 6.375% senior convertible notes due 2036 (6.375% Notes) in March and privately negotiated exchanges and purchases in August, the Company reduced its long-term debt by $99.6 million when compared to fiscal 2009 year end balances. See Note 5 of the Notes to Consolidated Financial Statements and the Liquidity and Capital Resources section of Managements Discussion and Analysis for further discussion of the Companys debt transactions.
Net sales for the second quarter of fiscal 2010 were $286.7 million, down 10.5% or $33.8 million from last years second quarter net sales of $320.5 million. Net sales declined $62.7 million or 9.9% from $630.5 million to $567.8 million during the six-month period ended August 29, 2009 when compared to the same period last year. Comparable store sales for the quarter and year-to-date periods declined 7.6% and 7.5%, respectively, which can be attributed to a reduction in customer traffic related to the decline in the overall economic environment. Without the effects of Canadian currency conversion rates, the decline in comparable store sales would have been 6.9% for the quarter and 6.5% year-to-date. Sales on the Pier 1 credit card comprised 26.1% of U.S. store sales compared to 24.4% last year, while year-to-date sales on the Pier 1 credit card were 25.7% of U.S. store sales versus 24.1% last year.
Gross Profit Gross profit after related buying and store occupancy costs, expressed as a percentage of sales, increased 160 basis points to 28.5% for the second quarter of fiscal 2010, and increased 170 basis points to 29.3% for the first six months of fiscal 2010. As a percentage of sales, merchandise margins increased 270 basis points for the second quarter and 280 basis points for the six-month period ended August 29, 2009, from the comparable periods a year ago. The increase in merchandise margins was the direct result of reduced markdown activity and strong input margins. In addition, margins continued to benefit from supply chain efficiencies such as lower fuel, transportation, and labor costs when compared to the same period last year.
Operating Expenses, Depreciation and Income Taxes Selling, general and administrative expenses for the second quarter of fiscal 2010 were $91.0 million, or 31.8% of sales, a decrease of $16.0 million, or 160 basis points as a percentage of sales, from the same quarter last year. Year-to-date selling, general and administrative expenses were $196.6 million, or 34.6% of sales, a decrease of $19.8 million and an increase of 30 basis points as a percentage of sales. This decrease in dollars for both periods was primarily related to managements intentional reduction of expenses as well as store closures. Selling, general and administrative expenses for the quarter and year-to-date periods included the following charges summarized in the tables below (in thousands):
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