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Pier 1 Imports Inc. will ask holders on July 1 to authorize a reverse stock split. A headline on an article about the company in some editions Wednesday incorrectly said that the reverse stock split would occur in July.
(WSJ June 18, 2009)
Housewares retailer Pier 1 Imports Inc., in its fifth year of expected losses and lower sales, is shoring up its balance sheet and making strides with merchandising that could pay off once economic pressures ease.
"Pier 1, to most outsiders, looks like a lost cause," said Raymond James analyst Budd Bugatch in a recent note reiterating his "strong buy" rating on shares. "We think that once the economy begins to recover -- even modestly -- this issue will not have been lost at all and will have been well worth fighting for."
After trading as low as 10 cents apiece in March on worries the Fort Worth, Texas-based company might not survive, shares traded near $2 recently. Pier 1 officials didn't respond to requests for comment.
Part of the buying has come from Greek Investments LLC, which has purchased 10.5 million shares -- or a nearly 12% stake -- since April 14 to become Pier 1's top shareholder. Securities and Exchange Commission filings indicate the firm is a passive investor on behalf of an Athens woman, Maria Konstantinu, and her three adult children. None of the principals could be reached for comment.
The purchases followed Pier 1's year-end results for fiscal 2009, which showed store traffic and the average sales receipt -- while still grim -- are stabilizing. Liquidity also improved. The company repurchased $79 million of convertible notes, allowing it to nearly halve its debt.
Pier 1 also cited success in negotiating cuts on occupancy expenses, as it reduced planned store closings to 80 from 125 this year.
Nevertheless, Wall Street brokerages are largely neutral to negative on the shares, given Americans' tight-fistedness and Pier 1's long history of weak results. Some analysts believe Pier 1 must close even more stores to regain profitability.
Closings by bankrupt retailers Bombay Co. and Linens 'N Things, and limited store closings by Kirkland's, Cost Plus Inc., and others over the past two years have cut the number of stores operated by struggling major chains by nearly 1,000. But some analysts say there are still too many.
"This is what I call a show-me story," said Oppenheimer Co. analyst Brian Nagel, who gives Pier 1 shares a "perform" rating and has a 12-month price target of $2. Most analysts don't expect Pier 1 to post a full-year profit before February 2012.
Some analysts credit Chief Executive Alex Smith for improving merchandise and cutting costs, which should help results once economic pressures ease. Mr. Smith, who joined Pier 1 in 2007, shut down Internet, catalog and children's furniture-store operations to focus on stores. The company has negotiated better prices with vendors and cut inventory through more accurate buying.
Operating expenses last year fell 7%, but a 12.6% drop in net sales overshadowed the improvement, leading to a wider net loss of $1.45 a share.
Under Mr. Smith, Pier 1 has added more affordable, impulse merchandise, even when it comes to furniture. Limited product availability is intended to foster frequent shopping trips and full-price purchases.
The strategy seems to have had some success. Pier 1 says it's turning more shoppers into buyers. Merchandise margins rose for the second straight year, and Pier 1 has said it anticipates further improvement.
Charles Wetzel, chief operating officer of retail consulting firm Buxton Co., said falling stock markets and home values have "converted certain generations into bargain shoppers." and that could play into Pier 1's strengths. Fewer wealthy folks people are shopping in luxury stores, but they are unlikely to buy decor in Wal-Mart Stores Inc., either, said Mr. Wetzel, whose firm has helped Pier 1 study its customers.
Meanwhile, Pier 1's directors are asking shareholders on July 1 to authorize a reverse stock split, which would exchange from 2 to 20 shares outstanding for one share, and raise share prices proportionately.
The move was initially designed to boost share prices enough to meet NYSE listing requirements after Pier 1 shares slipped below the $1 threshold. Pier 1 has since regained compliance, but a delisting could trigger convertible noteholders' right to require the company to repurchase all or part of the notes, so Pier 1 is apparently seeking flexibility.
Credit: By Mary Ellen Lloyd
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