Pier 1 Scores a Recession Profit, Is Closing Less Stores

Pier 1 Imports (PIR) reported strong net income numbers for the second time in its current fiscal year during its recently completed third quarter, when it brought in $39 million. The windfall was especially impressive in contrast to the first quarter's net income of $29 million because other fundamentals are starting to pick up.

These numbers are particularly impressive given the recession. Plus, some in the industry not too long ago thought that Pier 1, a well-known U.S. chain with more than 1,000 stores, didn't have much time left.

Sales at stores open at least a year soared 13.7 percent in the third quarter, while due to fewer product markdowns, margins were 56.6 percent of sales, up from 52.5 percent in the same year-ago period. By contrast, same-store sales fell 7.5 percent in the profitable first quarter, and margins were at 54 percent.

Good news for retail landlords is that Pier 1 shaved its coming round of store closures in the current quarter, from 50 to 40 units. So far this year it shut 33 locations. Earlier in the year, executives announced that 125 stores could close their doors in 2009.

So what is causing these improvements? Maybe the three-year turnaround pushed by Chief Executive and President Alex Smith is starting to kick in. When Smith took the helm in 2007, the retailer was certainly in worse shape.

Smith said, during the third-quarter conference call, that the retailer employed "most consistent selling standards" that led to better sales during Halloween and the "harvest" season. Marketing, with a push in both television and print advertising assisted the sales of furniture. Additionally, Smith asserted that Pier 1 can hold its prices steady throughout the holiday season without significant discounting and still perform well.

Also -- and this news isn't so good for shopping-center owners -- Pier 1 is receiving rent-reductions from its landlords that will total the chain $38 million in savings by the end of fiscal year 2012, said Charles Turner, chief financial officer. The chain might even open a few more stores next year.

So if the holiday season is a success, Pier 1 could go from being a distressed retailer at the beginning of the recession, to an expanding outfit by the time the financial mess is over.