Pier 1 regains footing in 2016, eyes improved profits
Pier 1 shrank its store base and e-commerce penetration reached record levels during the company’s fourth quarter, a period in which profitability was marred by promotions, markdowns and supply chain issues.
Pier 1’s sales declined 1.4% to $542.3 million and same-store sales declined 0.6 during the quarter ended Feb. 27. Sales declined 0.5% and same-store sales increased 0.3% on a constant currency basis. Full-year sales increased 0.4% to nearly $1.9 billion and same stores sales increased 0.7%. On a constant currency basis sales increased 1.4% and same store sales increased 1.7%.
In addition to a lack of productivity from existing stores, Pier 1’s top line performance was further challenged by the closing of stores. During the fourth quarter, the company closed 24 stores and opened one store. For the full year, the company closed 50 stores and opened 17 stores to end the year with 1,032 locations as part of its real estate optimization plan. In 2014, Pier 1 closed 37 stores and opened 30 stores. The company expects to close 20 stores this year.
“Although fiscal 2016 was a challenging year, we made solid progress toward stabilizing top line trends, cutting costs and reducing inventory levels,” said Pier 1 President and CEO Alex Smith. “We also delivered another year of strong e-commerce sales, which increased 45% on top of 193% growth last year.”
E-commerce now accounts for 16% of Pier 1’s sales, up from 11% the prior year.
Profits during the fourth quarter declined to $18.7 million, or 23 cents a share, compared to $33.1 million, or 37 cents the prior year. If the impact of retirement expenses for the company’s former CFO are excluded, profits increased to 435.1 million, or 39 cents a share. Full year profits declined to $39.6 million, or 46 cents a share, from $75.2 million, or 82 cents the prior year. Including the CFO retirement costs, profits still declined to $77.2 million, or 84 cents a share.
“We entered fiscal 2017 with much improved distribution center operations. The significant strides we made on the inventory front helped us put many of the issues in our distribution centers behind us and we’re now starting to see improved efficiency across the network, which will help us strengthen merchandise margin,” Smith said. “In fiscal 2017 we will emphasize more forcefully our newest products and our strongest categories. With an increased marketing spend and the extension of our rewards program we expect not only to continue to build frequency and retention, but additionally, to drive new customers to the brand.”
Smith doesn’t expect immediate improvement however. The company is forecasting only modest growth in revenue and earnings this year. Performance is expected to be the strongest in the second half of the year with growth accelerating in 2017.
According to CFO Jeffrey Boyer, the company’s outlook assumes some top and bottom line pressure during the first half of the year with momentum gained in the back half of the year.
“Most notably, our profitability in the first half will be impacted by investments in marketing, including our return to television earlier this month, as well as higher clearance levels and the final tranche of legacy supply chain costs,” Boyer said. “Additionally, our top-line results will reflect the timing impact of Memorial Day, which shifts from our first fiscal quarter into our second fiscal quarter this year.”