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Pier 1 Announces Three-Year Growth Plan and Stock Buy Back Program

April 15, 2011 | About:

Pier 1 Imports, the home decorations, furniture and gift store chain, recently announced its full year results for the financial year ended Feb. 26, 2011, with income before taxes of $103.5 million compared to $32.1 million in 2010 as comparable store sales increased 10.9% and merchandise margins for the year improved to 58.6% of sales compared to 54.8% of sales last year. Cash flow from operating activities increased strongly to $148.4 million compared to $70.6 million the previous year.

At the same time, the company announced the launch of a three-year growth plan to drive sales and improve profitability in order to increase shareholder value. The company’s plan includes investing in the acceleration of e-commerce initiatives, existing stores improvements, expansion of the store portfolio, and development of infrastructure and technology to enhance business processes and efficiencies throughout the entire organization. The company plans to invest approximately $200 million over the next three years in these initiatives, utilizing cash flow from operations. The board also approved a plan to return value to shareholders by authorizing an initial share repurchase program of up to $100 million.

Pier 1 launched in-store merchandise availability on its website, Pier1.com, in October 2010, and has seen a significant increase in incremental visits to its website since then. The Company plans to launch “Pier 1.2Go,” in late spring 2011 which will allow customers to order and reserve merchandise online, to be picked up and paid for in any of the company’s more than 1,000 store locations throughout the United States and Canada. A system that allows multiple delivery options is timetabled for completion by summer of 2012.

Over the next three years, the company’s store improvement initiatives will impact approximately 90% of the existing stores and include capital investments in new store fixtures, store remodels and other leasehold improvements. The company has developed new merchandise fixtures designed to give the stores a more open look, allowing merchandise to be visible and accessible on all sides of the unit. The new fixtures have recently been tested in certain stores with initial positive results realized in sales and productivity.

The company’s growth plan also includes investing in the expansion of its existing store portfolio from 1,046 Pier 1 Imports stores today throughout the United States and Canada to approximately 1,100 Pier 1 Imports stores in the United States and Canada within five years. The company currently plans to open approximately 80 stores and close approximately 30 stores as part of its net new store growth initiative. These 80 store openings will consist of both openings in new markets as well as re-locations within existing markets.

Alex W. Smith, president and CEO, commented, “Within the next three years, our goal is to achieve sales of $200 per retail square foot and drive our operating margin to at least 10% of sales, and within five years to have an online business that contributes at least 10% of revenues.”

Smith was appointed in February 2007 from TJX companies Inc. (NYSE:TJX) where he had been in charge of the operations of Home Goods, Marshalls, and TJ Maxx, plus a number of corporate functions. At Pier 1, his role was to turn around a company that had just reported a loss of $228 million. Despite the sharpest economic downturn for a generation, Smith has managed to return a profit for the past three years and has paid down the company’s debt from $184 million to $10 million while increasing cash from $167 million to $301 million.

As of April 14, the stock was trading on 17.1 times earnings, having rallied since September — quite a healthy multiple for a retailer. However, if Smith is successful in his plans to increase retail space, sales and margins, then Pier 1 may see operating profits increase from $104 million to $161 million over the next three years with further revenues expected from online channels.

Disclosure: The author has no long or short positions in Pier 1 Imports Inc.

Rating: 3.5/5 (6 votes)


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