Pier 1 inventory troubles detract from e-commerce success

E-commerce sales surged at Pier 1 Imports during the second quarter, but the retailers overall sales grew less than expected and the company lowered its full year outlook.



Total sales increased 2.7% to $430 million and same-store sales increased 2.5%. Excluding the effects of the stronger U.S. dollar, total sales increased 4% and same-store sales increased 3.8%.



Either way, president and CEO Alex Smith said the company’s performance was disappointing as profits were below prior year levels. Net income during the quarter ended Aug. 29, of $3.2 million, or four cents a share, was well below prior year second net income of $9.2 million, or 10 cents a share.



“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,” Smith said. “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.”



Despite the sales, inventory and profitability challenges, Smith singled out the company’s omnichannel efforts as an area where great progress has been made. For example, during the second quarter, e-commerce sales represented 17% of total sales, compared to 10% the prior year.



While Pier 1 is intensifying it omnichannel efforts, the company’s physical footprint is contracting slightly. During the second quarter, the company closed 16 stores and opened six and of those six four were relocations. It ended the period with 1,053 stores and for the full year it expects net closure to total 30 units.



“We are continuing to work through the near-term issues stemming from our elevated inventory levels and have adopted a more cautious and deliberate view of the business based on our first half trends,” said CFO Jeffrey Boyer. “At the same time, we are pursuing a number of avenues to drive additional process improvements and further reduce expenses. We see significant opportunities to expand the profitability of the company’s omnichannel model in the coming years.”