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Pier 1 Imports Inc. looked more like a bank filled with toxic subprime mortgages on its books than it did a home decorating retailer on Tuesday, as fleeing investors sent the stock 35% lower in midafternoon trading.
Why the panic? A combination of things. Chief among them may be waning investor confidence that Pier 1 can turn itself around. It's no secret that Pier 1 has been on a long decline in tandem with the worsening economy over the last two years, so it was no surprise when the company announced Monday comparable store
sales fell 11.7% for the five-week period ended Oct. 4. Shareholders were further discouraged by management's outlook. "If we continue to experience traffic levels like those seen in recent weeks, we will not meet the current consensus for earnings expectations for the back half of the fiscal year," Alex W. Smith, Pier 1 president and CEO, said. The drop of comparable same-store sales punctuated the notion that Pier 1's restructuring plan launched two years ago is not working. A key piece of Pier 1's turnaround plan was the shuttering of its catalog and conversion of its Web site from an e-commerce site to a strictly advertising format. Pier 1 also ended its TV advertising. Those reductions netted a savings of around $12 million over the second quarter, but begs the question of how much was lost in possible sales. Meanwhile, the company made -- some would argue -- an ill-timed and unnecessary bid for Oakland, Calif.-based rival Cost Plus Inc. The offer never panned out, and Pier 1 abandoned the deal in June. Now, with its the rickety foundation starting to buckle under pressure from the credit crisis, Pier 1 is seeing jittery consumers -- already strapped for cash because of the rise of
essentials such as food and fuel -- reduce their discretionary
spending. The company also carries the added burden of a credit rating below investment-grade level, making attempts to borrow money more expensive. Pier 1 did have $191 million in its coffers at the end of the second quarter. But that increased figure was the result of the $102 million divestment of its corporate headquarters, not actual sales. Unless management can pull a rabbit out of its hat or the economy turns around dramatically before the Christmas season, Pier 1 -- like some struggling banks -- may end up on the auction block or, even worse, walking down the path of bankruptcy. - Gerald Magpily Dealscape: Pier 1 is sinking into the sea CategoriesComments Deal Video
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Disaster!