Posted Saturday, Jun. 16, 2012
By Mitchell Schnurman
mschnurman@star-telegram.com
If the economy has you down, there's always Pier 1 Imports.
Last week, the Fort Worth retailer reported its 11th consecutive quarter of growth in same-store sales and profit, a streak that has defied a choppy recovery and sluggish housing market.
Pier 1 plans to open 20 to 25 stores this year and refurbish 100 others, and boost inventories by 10 percent. It expects to spend up to $75 million on capital improvements, up from $5 million three years ago.
In two years, Pier 1 added 3,500 employees, primarily part-timers. And it's hiring workers in Fort Worth and Mansfield for a website that launches next month. That additional local staff will cost about $4 million annually.
The future looks so bright that Pier 1 forecasts that earnings per share could grow 21 percent this year.
Before it entered this expansion phase, Pier 1's turnaround was already legendary. Three years ago, the stock traded as low as 11 cents a share, and many feared that the national chain would go bankrupt and disappear.
It survived and thrived -- the stock (ticker:
PIR) closed at $16.10 Friday, up almost 16 percent this year -- because Pier 1 got back to its roots. CEO Alex Smith, who joined in 2007, was determined to re-create the original "treasure-hunt" feel of the stores. Even though the company was in trouble, he recruited more merchandisers, because they were crucial to discovering unique products that would bring in customers and drive impulse buys.
Smith also made a couple of changes that haven't been widely publicized. He made sure that no merchant selected more than 5 percent of the portfolio, so the fallout from missteps would be limited, according to a recent report by analyst John Marrin of Jefferies & Co.
Then Smith created a planning and allocation team, freeing the merchants from details like deliveries and logistics. Smith wanted merchants to refocus on product development, including analyzing the assortment, customers and competition.
"He gave them 'more time to think,'" Marrin wrote this month.
Workers still get time to think in today's nonstop world? Smith decided that Pier 1's staff couldn't afford not to. The results have been impressive, especially with the economic headwinds.
In the 12 months ending in May, the company averaged $187 in sales per square foot, compared with $152 two years ago. That's a gain of 23 percent and a reflection of how the products have resonated.
And profit margins keep climbing, as Pier 1 improves the balance between full-price and promotional items, now about 50-50. First-quarter results were boosted by strong full-price selling, the company said, and it posted a 26 percent gain in net income.
Last year, Pier 1's gross profit was 42.5 percent of sales; in 2009, it was 27.5 percent.
"We are seeing more wins, fewer losses, and less risk-taking," wrote Marrin, who has a "buy" rating on the company's stock.
Last year, Pier 1 announced a goal of $200 in sales per square foot. In April, it raised the bar to $225 by 2015 and also increased its operating margin goal by 2 percentage points.
The online push is a big part of future growth. Smith wants online commerce to account for 10 percent of sales in three years. That's aggressive, but he believes that the company can transfer the treasure hunt theme online and even push some of those customers into the stores.
If online items are picked up at a Pier 1, they don't have to pay for shipping. But they'll have to pay for home delivery.
"To me, free shipping is just a markdown," Smith told analysts in a call last week. "And we're not reckless with markdowns and discounts in our stores business. We're certainly not going to be in our online business."
For about a year, Pier 1 has been selling items online to be picked up at stores, and it's been a hit, with higher average tickets. That operation, Pier 1 To-Go, accounted for 1 percentage point of the 7 percent gain in the quarter's same-store sales. Next month's launch will include a major overhaul of the website, with improvements in search, selection and more. The company's distribution center in Mansfield will handle fulfillment, while the Fort Worth headquarters oversees the website.
Many retailers have complained about "showrooming" -- shoppers who try out items at brick-and-mortar stores and then buy online for a discount. Marrin said Pier 1 isn't vulnerable, because almost none of its merchandise can be found anywhere else.
And that's one path to retail success: Own a brand that's unique and specialized.
The pressure is on Pier 1 to constantly deliver items that are in fashion, but Marrin said that's where it excels.
Another important development last week: Smith, who's 59, extended his contract by three years, so he's signed with Pier 1 through Feb. 27, 2016.
Despite all the progress in the past five years, Marrin wrote, "one gets the sense that this management team is just getting started."
In addition to some generous stock awards, maybe that's why Smith is sticking around.
Mitchell Schnurman's column appears Sundays and Thursdays. 817-390-7821Twitter: @mitchschnurman
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