This Company Knows How to Crawl, Walk, and Run

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Pier 1 Imports (NYSE: PIR), a specialty retailer of imported decorative home furnishings and gifts, celebrated its golden anniversary in business with 3% rise in its fiscal third quarter, making it the 13th consecutive quarter of strong sales and earnings. It has more than 1,000 stores in the U.S., a market capitalization nearly $2 billion, and a P/E ratio of 11.60.

Performance

This home décor store chain reported earnings of $23.7 million, or $0.22 cents per share, on revenue of $425 million. Revenue rose by 11%, and at stores open for at least a year it increased 7.9%, which would have been about 9% if stores didn’t close due to Hurricane Sandy. The increase in revenue is backed by the increasing visits by customers both at stores and Pier.com, which makes them spend more money on purchases.  This marks the company’s first full quarter of e-Commerce sales, and both new and existing customer visits indicates the long-term opportunity is significant. Gross profits rose 0.7% to 43.9%. Operating income was up 9.1% in the third quarter, and the merchandise margin of 60.4% represents a good balance between sales growth and margin rates.

Competition

Competitors include Bed Bath & Beyond (NASDAQ: BBBY), Restoration Hardware (NYSE: RH) and Williams-Sonoma (NYSE: WSM). Home goods retailer Restoration Hardware recently completed its initial public offering priced at $24. Since then, shares have risen by 53%. For the third quarter that recently ended, it reported earnings per share of $0.05 on revenue of $284.2 million. RH’s unique real estate strategy will drive sales productivity over the long term.

After delivering two quarters of weak results, Bed Bath & Beyond is expected to satisfy the market with positive results this week. Analysts’ expects earnings per share of $0.99 to $1.06 per share on revenue of $2.73 billion this quarter. Bed Bath & Beyond is a chain of retail stores that sells products for the home, with a market cap of $13.084 billion.

Though investors do not fully appreciate Williams-Sonoma’s growth potential of their e-commerce business, the company recently launched MarkandGraham.com, a new e-commerce site featuring personalized gifts and accessories. It reported earnings of $48.9 million on revenue of $944.55 million this quarter, and has a high P/E ratio of 18.91 times.

Times Ahead

For the fourth quarter ending in February, the company projects earnings per share of $0.57 to $0.61, exceeding analysts’ expectations of $0.58 cents a share. It plans to open approximately 5 to 7 stores and close 3 to 5 stores this quarter. Strong traffic trends at stores during these holiday season can make up as much as 40% of a retailer's annual revenue. The management says that if this trend continues, then shareholders may expect a pleasant surprise in earnings next quarter.

The company also plans to spend $100 million to buy back its shares, and increased its dividend by 25% to $0.05 a share, which will be paid to shareholders on Jan. 30.

Final View

The company remains in strong financial condition and ended the quarter with $120.8 million in cash and cash equivalents. In recent years, the company has rebounded strongly under Alex Smith, chief executive, who focused on improving operations at the stores.  It also aims to build a service where customers shall order goods online and pick them up at their neighborhood store.

The share price of Pier 1 Imports have increased about 37% this year and is expected to perform well in the coming quarter.  Inclusion of this stock in the portfolio shall reasonably help investors earn good returns in the coming years.


sidhikharkia has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Bed Bath & Beyond and Williams-Sonoma. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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