Pier 1 Hit By Slow Outdoor Furniture Sales, High Inventory In Q2

For the second quarter ended August 29, Pier 1 Imports posted net income of $3.2 million, or four cents per diluted share, versus $9.2 million, or 10 cents per diluted share, in the period a year prior. Comparable sales gained 2.5%, or 3.8% on a constant currency basis, the company reported.

Analysts polled by Thomson Reuters expected, on average, diluted earnings per diluted share of seven cents.

Total sales in the quarter increased 2.7%, or 4% on a constant currency basis, to $430 million compared to $418.6 million in the previous second quarter.

Pier 1 earnings were impacted by a gross profit decreased to $149.5 million from $162.6 million during last year’s second quarter, with the year-over-year decline primarily attributable to actions taken to reduce elevated inventory levels, the company noted. In a conference call, Alex Smith, Pier 1 president and CEO, said that Pier 1 had to mark down slow-moving outdoor furniture and continue dealing with inventory inefficiencies at distribution centers serving the company’s stores.

“We are disappointed with our second quarter sales and earnings results,” Smith said. “Top line growth was below our expectations, with company comparable sales up 3.8% on a constant currency basis. During the period, our margins were impacted by increased promotional and clearance activity, as well as inventory related issues within our distribution center network. We’ve made progress toward bringing inventories in line and remain on track to end fiscal 2016 with year-over-year levels down meaningfully. However, operating with elevated inventories has been a challenge. As such, and considering our second quarter sales trend, we are tempering our expectations for the balance of the year.”

Smith added, “Despite the difficulties we are experiencing, we have continued to make progress in many areas of the business that underscore the strength of our omnichannel strategy. E-commerce sales continued to demonstrate strong growth, representing 17% of total sales in the second quarter, up from 10% last year. As we approach the second half of fiscal 2016 and upcoming holiday season, we have a strong mix of marketing and customer engagement strategies, combined with fresh seasonal assortments, designed to drive brand traffic. Looking further ahead, we are focused on returning to a healthy inventory position and continuing to execute our operating strategies, which we expect will position the business to deliver profit growth in fiscal 2017.”

During the second quarter of fiscal 2016, the company closed 16 stores and opened six, four of which were relocations, ending the period with 1,053 stores. Pier 1 said it expects to end fiscal 2016 with approximately 30 net store closures.