Pier 1 Starting to Turn the Ship

Pier 1 Imports posted positive earnings per share last week for the first time in 12 quarters. For fiscal 2008, merchandise margins ran 48.5 percent of sales. That may not sound like much to write home about, but "If you think of where we started in all of this, I think that was a pretty good achievement, frankly," President and CEO Alex Smith told analysts during an April 10 earnings call.

The upswing could mark the beginning of a turnaround under Smith, who replaced longtime CEO and Chairman Marvin Girouard in January 2007. At that time, merchandise margins had fallen to 47.9 percent (from 53.1 percent in 2005) as Pier 1 discounted heavily to keep product moving out the doors. A lot of the company's problems were of its own making, Smith admits. Here's a quick rundown of the issues he inherited, and some changes he's made so far:

Then: Heavy marketing spend spread evenly across the calendar
Now: Marketing focused on seasons

Then: Poor expense control
Now: $160 million cut from SG&A last year

Then: Poor supply-chain management
Now: Much of buying team has been replaced, warehouse inventory is declining

Then: Counterproductive pricing, using discounting to spur sales
Now: New strategy uses markdowns only to manage inventory

While 75-percent-off clearance sales continue to put pressure on margins, Pier 1 stores have been restocked with a better balance of price points and organized into departments to make the store easier to shop (and stock). Items per transaction and conversion rates rose in the fourth quarter, Smith said, partly because a frequently changing assortment of smaller items motivates shoppers to visit more often. All part of Smith's strategy to "de-risk the business with smaller buys."