Pier 1 Imports, Inc. Reports First Quarter Fiscal 2017 Financial Results

Pier 1 Imports, Inc. (NYSE:PIR) today reported financial results for the first quarter ended May 28, 2016.

Alex W. Smith, President and CEO, stated, “Our first quarter sales were not as strong as we would have liked. Although many of our merchandise categories performed satisfactorily, outdoor furniture was affected by internal and external pressures, including competitive pricing. At the same time, the headwind of a challenging store traffic environment remains.”

“From a merchandise margin perspective, promotional discounts were essentially in line with our plan, but we made the strategic decision to accelerate our clearance activity to ensure clean inventory. We expect to generate merchandise margin improvement in subsequent quarters and have left our guidance with respect to merchandise margin unchanged for full year fiscal 2017.”

“The organization is working diligently to improve our sales performance and capture incremental margin in the second half of the year, as many of our product, marketing and loyalty strategies will be unfolding over that period,” continued Mr. Smith. “Our brand is strong and our customers love us. Our focus hasn’t changed -- deliver unique merchandise offerings, become more efficient across all parts of our business, attract new customers to our brand and continue to engage and retain Pier 1 Imports loyalists.”

First Quarter Fiscal 2017 Results of Operations

Net sales for the first quarter decreased 4.2% (a 3.9% decrease on a constant currency basis after adjusting for a 30 basis point impact attributable to the year-over-year decline in the value of the Canadian Dollar relative to the U.S. Dollar) to $418.4 million, compared to $436.9 million in the same period last year. Company comparable sales decreased 2.5% (a 2.2% decrease on a constant currency basis). E-Commerce represented approximately 19% of net sales in the first quarter, as compared to approximately 17% of net sales in the first quarter of fiscal 2016.

Gross profit in the first quarter totaled $149.0 million, or 35.6% of net sales, compared to $169.5 million, or 38.8% of net sales, in the first quarter of fiscal 2016. First quarter merchandise margin (the result of adding back delivery and fulfillment net costs and store occupancy costs to gross profit) totaled $232.5 million, or 55.6% of net sales, compared to $252.8 million, or 57.9% of net sales, in the first quarter of fiscal 2016. The year-over-year decline in merchandise margin is primarily attributable to elevated clearance and planned incremental promotional activity. For the three months ended May 28, 2016, contribution from operations (gross profit less compensation for operations and operational expenses) totaled $68.7 million, compared to $84.8 million during the same period last year.

First quarter fiscal 2017 selling, general and administrative (“SG&A”) expenses were $142.7 million, or 34.1% of net sales, compared to $143.6 million, or 32.9% of net sales, in the year-ago period. Cost reductions across the organization were partially offset by investments in marketing, including television advertising. The following table details the breakdown of SG&A expenses for the first quarter of fiscal 2017 as compared to the same period last year (in millions).

First quarter fiscal 2017 operating loss was $7.8 million compared to operating income of $13.6 million in the same period last year. Net loss for the first quarter ended May 28, 2016, was $6.0 million, or ($0.07) per share, compared to net income of $6.9 million, or $0.08 per share, in the year-ago period. First quarter EBITDA (earnings before interest, taxes, depreciation and amortization) was $6.8 million, versus $26.1 million in the first quarter of fiscal 2016.

Balance Sheet Highlights and Share Repurchase Program

As of May 28, 2016, the Company remained in solid financial condition with $128.0 million of cash and cash equivalents, $196.5 million outstanding under its senior secured term loan and no cash borrowings under its $350 million secured revolving credit facility. Inventories at the end of the first quarter of fiscal 2017 decreased 16% to $421.1 million, compared to $501.7 million of inventories at the end of the first quarter last year. Capital expenditures in the first quarter totaled $10.0 million, which was deployed toward the opening of new stores, other leasehold improvements and technology and infrastructure initiatives.

During the first quarter ended May 28, 2016, the Company repurchased approximately 1.0 million shares of its common stock for approximately $6.1 million. Subsequent to the end of the first quarter, the Company has repurchased an additional 735.0 thousand shares of its common stock for approximately $4.1 million. Of the Company’s $200 million share repurchase program announced in April 2014, $37.0 million remains available for repurchases.

Real Estate Optimization Initiative

During the first quarter of fiscal 2017, the Company closed eight stores and opened three. The Company continues to expect to have approximately 20 store closures in fiscal 2017.

Store Statistics

Second Quarter and Full-Year Fiscal 2017 Financial Guidance

Jeffrey N. Boyer, EVP and Chief Financial Officer, stated, “Our profitability in the first half of the year is largely being impacted by planned investments in marketing, a competitive promotional environment and the costs related to prior distribution center network inefficiencies. At the same time, soft store traffic continues to weigh on our performance. We expect to pick up momentum in the second half of fiscal 2017 as key initiatives designed to drive sales and margins take hold and we move into our seasonally strong holiday period. Given the challenging retail environment and moderate start to fiscal 2017, we believe it is prudent to adjust our financial guidance.”

The Company provided the following updated financial guidance for the fiscal 2017 second quarter and full year:

Declaration of Quarterly Cash Dividend

The Company announced that its Board of Directors declared a $0.07 per share quarterly cash dividend on the Company’s outstanding shares of common stock. The $0.07 quarterly cash dividend will be paid on August 3, 2016, to shareholders of record on July 20, 2016. As of June 28, 2016, approximately 83.4 million shares of the Company’s common stock were outstanding.

First Quarter Fiscal 2017 Financial Results Conference Call

The Company will host a conference call to discuss first quarter fiscal 2017 financial results at 4:00 p.m. Central Time on Wednesday, June 29, 2016. Investors will be able to connect to the call through the Company’s website at Pier1.com. The conference call can be accessed by selecting “About” on the homepage and linking through the “Investor Relations” page to the “Events” page, or by dialing 1-800-498-7872, or if international, 1-706-643-0435. The conference ID number is 22684874.

A replay will be available after 7:30 p.m. Central Time for a 24-hour period and can be accessed by dialing 1-855-859-2056, or if international, 1-404-537-3406 using conference ID number 22684874.

Financial Disclosure Advisory

The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). This press release references non-GAAP financial measures including constant currency, merchandise margin, contribution from operations and EBITDA.

The Company believes that the non-GAAP financial measures included in this press release allow management and investors to understand and compare results in a more consistent manner for the three-month periods ended May 28, 2016, and May 30, 2015. Non-GAAP financial measures should be considered supplemental and not a substitute for the Company’s results reported in accordance with GAAP for the periods presented.

Merchandise margin represents the result of adding back delivery and fulfillment net costs and store occupancy costs to gross profit. Contribution from operations represents gross profit less compensation for operations (which includes store and customer service payroll) and operational expenses. EBITDA represents earnings before interest, taxes, depreciation and amortization. Management believes merchandise margin, contribution from operations and EBITDA are meaningful indicators of the Company’s performance which provide useful information to investors regarding its financial condition and results of operations. Management uses merchandise margin, contribution from operations and EBITDA, together with financial measures prepared in accordance with GAAP, to assess the Company’s operating performance, to enhance its understanding of core operating performance and to compare the Company’s operating performance to other retailers. These non-GAAP financial measures should not be considered in isolation or used as an alternative to GAAP financial measures and do not purport to be an alternative to net income or gross profit as a measure of operating performance. A reconciliation of net income (loss) to EBITDA to contribution from operations to merchandise margin is shown below for the periods indicated (in millions).

This press release also references company comparable sales on a constant currency basis, which is calculated by translating the current and prior periods into comparable amounts using the same foreign exchange rate. Management believes this non-GAAP financial measure is useful when comparing sales results between periods when foreign exchange rates are volatile.

Except for historical information contained herein, the statements in this press release or otherwise made by our management in connection with the subject matter of this press release are forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) and involve risks and uncertainties and are subject to change based on various important factors. This press release includes forward-looking statements that are based on management’s current estimates or expectations of future events or future results. These statements are not historical in nature and can generally be identified by such words as “believe,” “expect,” “estimate,” “anticipate,” “plan,” “may,” “will,” “intend” and similar expressions. Management’s expectations and assumptions regarding future results are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements included in this press release. These risks and uncertainties include, but are not limited to: the effectiveness of the Company’s marketing campaigns and customer databases, consumer spending patterns, inventory levels and values, the Company’s ability to implement planned cost control measures, expected benefits from the real estate optimization initiative, including cost savings and increases in efficiency, and changes in foreign currency values relative to the U.S. Dollar. These and other factors that could cause results to differ materially from those described in the forward-looking statements contained in this press release can be found in the Company’s Annual Report on Form 10-K and in other filings with the SEC. Refer to the Company’s most recent SEC filings for any updates concerning these and other risks and uncertainties that may affect the Company’s operations and performance. Undue reliance should not be placed on forward-looking statements, which are only current as of the date they are made. The Company assumes no obligation to update or revise its forward-looking statements.

Pier 1 Imports, Inc. is the original global importer of home décor and furniture. Information about the Company is available on www.pier1.com.

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