Lower Rents Can't Raise Pier 1 Prospects

Pier 1 is approaching landlords of 125 of its stores and asking to renegotiate lease obligations, a request that certainly will be backed by at least the implied threat of bankruptcy.

Pier 1's real estate play was supported by other cost cutting measures including work force reductions and the shuttering of a distribution center, and it raised the company's share price by about six percent. Right now, share price is a big consideration for Pier 1, which has seen its stock trade under a dollar since early November, which triggered a December noticed from the New York Stock Exchange that it faced delisting. Yet despite its cost cutting prescription, by week's end, Pier 1 shares were selling at 36 cents, below their 39-cent high point for the week, and only a penny above where they started Monday. It seems as if investor confidence in Pier 1 cost cutting was outweighed by fear of bankruptcy. All the bad news will affect more than investors as suppliers, the service companies that support its operations and key personnel begin to wonder if the company will remain in business.

Pier 1's comparable store sales declined 18 percent in the last quarter and the business has demonstrated no real rebound in the current economic malaise. So, rental reductions, layoffs and the warehouse closing amount to little more than an adjustment to lower sales volume. And reducing rents will come at a cost because landlords aren't going to hand Pier 1 everything it wants for free. The company didn't even try to predict how much it would have to pay out to complete the negotiation process. All things considered, the latest Pier 1 initiatives don't have a clear prospect of changing its fate.