Pier 1 Raises Year View as It Readies E-Commerce Launch
06/14/2012| 01:10pm US/Eastern
--Company on track to launch online store July 28
--Raised full-year earnings forecast eases jitters about site costs
--Sales gains were strong even late in the quarter, CEO says
(Adds comments from executives and analysts, details about online site, stock movement, in the first through eighth paragraphs.)
By Joan E. Solsman and Victoria Stilwell
Pier 1 Imports Inc. (>> Pier 1 Imports, Inc.) quelled worries that the launch of its direct-to-consumer online store would crimp the bottom line, lifting its full-year earnings guidance as fiscal first-quarter earnings rose 26%.
The home-furnishings retailer's shares were up 4.6% at $16.29 in recent trading. The stock has climbed 17% so far this year, better than the market at large.
The company already has an online-ordering service called "Pier 1 To-Go," which lets shoppers reserve products online and pick them up in stores. But until the launch of "Pier 1 To-You," expected next month, the company hasn't had a true-blue online store that ships orders straight to customers' homes.
"The problem we have at the moment is we have no Internet business," Chief Executive Alex Smith said during a conference call to discuss results. "We're certainly very optimistic about it."
Thursday, the company raised its full-year earnings guidance by two cents, to a range between $1.08 and $1.14. Credit Suisse analyst Gary Balter said in a note that the slightly raised outlook indicated Pier 1's multi-channel investments aren't disrupting its earnings trajectory in the near term.
Mr. Smith said the company would increase its level of paid-search and digital-media marketing as it ramps up the online store, which will officially launch July 28. Pier 1 will shift weight in its media budget to digital starting this autumn, though it expects total marketing spending to stay steady at about 5% of sales.
He also said the company is building and training new customer-relations teams to support the e-commerce business. In its overhead costs, administrative payroll increased as a share of sales because of the headcount expansion. Chief Financial Officer Charles Turner said the company expects the second fiscal quarter to have $3 million to $4 million in additional fixed expenses to support the initiatives.
In the latest period, total sales for the quarter rose 7.9%, to $361.1 million, while same-store sales rose 7.2%. Mr. Smith said May was the company's biggest month of the quarter, when it had strong sales gains as late as the Memorial Day weekend. Other retailers have reported slowing sales in the later parts of spring.
Also on Thursday, Pier 1 extended its employment agreement with Mr. Smith, the architect of Pier 1's recent turnaround, by three years. Mr. Smith took over as CEO from longtime chairman and CEO Marvin Girouard in 2007, when Pier 1 was struggling with declining sales and lost market share to discount retailers such as Target Corp. (>> Target Corporation) and Wal-Mart Stores Inc. (WMT). The recession threw the sector into a tailspin, and the bankruptcy-court liquidation of peers such as Linens 'N Things Inc. raised fears of Pier 1's own Chapter 11 filing.
However, Pier 1's recovery has gained momentum lately on higher traffic, increasing same-store sales and higher average receipt per customer as it remodeled stores and streamlined its merchandise variety.
In April, it refreshed its growth plan with a new three-year guide, having outgrown its previous roadmap two years early. Similar to the company's previous strategy, the plan focuses on increasing online sales as well as building new stores and remodeling existing locations.
For the period ended May 26, Pier 1 reported a profit of $17.8 million, or 16 cents a share, up from $14.1 million, or 12 cents a share a year, earlier.
Earnings matched the company's May guidance, which was in line with Wall Street expectations at the time.
Gross margin widened to 41.6% from 40.1%. Merchandise margin, which excludes store occupancy costs, widened to 60.2% from 59.8%.
Write to Joan E. Solsman at firstname.lastname@example.org and Victoria Stilwell at Victoria.Stilwell@dowjones.com