Hey, Pier 1: How about finishing Job One?

Pier 1 Imports has a new take on treasure-hunting: Buying a longtime rival for less than its market cap.

Last week, Pier 1 offered to buy Cost Plus in a stock swap that would combine two similar retailers, whose fortunes went south about the same time and are now starting to improve.

With no cash involved, the low-ball bid is almost entirely a bet on Pier 1's management team, led by CEO Alex Smith, who arrived from T.J. Maxx just 16 months ago. Under Smith, Pier 1 has cut annual costs by $160 million, primarily by closing stores and slashing payroll and marketing. At the same time, Pier 1 reworked the merchandise mix and refocused on inexpensive impulse buys.

The efforts paid off with a fourth-quarter profit of $13.7 million, the first in three years. And same-store sales increased after an even longer drought.

Smith, who will address shareholders at Pier 1's annual meeting Friday in Fort Worth, must figure that he can use the same blueprint at Cost Plus and leverage Pier 1's management talent across a larger platform. The acquisition would boost annual revenue by 69 percent and diversify sales, because Cost Plus puts an emphasis on imported wine, coffee and food.

This is a cheap (maybe low-risk) way to expand, especially if Pier 1 doesn't have to part with any cash. The price is so low, valued at about $73.5 million on Friday, that Pier 1 shareholders don't even have to approve issuing new stock to do the deal.

For Cost Plus shareholders, it's a much different analysis. They have to ask whether Pier 1's revival is for real and, more importantly, whether it can be replicated quickly at Cost Plus.

Wall Street has doubts. Pier 1's stock price fell 20 percent after the bid and recovered a bit at the end of the week. Cost Plus' stock got an initial bump and then retreated.

Because the value of the offer hinges on Pier 1 shares, the bid is worth less today than when it was proposed to Cost Plus' board last weekend. And Cost Plus' market cap on Friday was slightly higher than the value of Pier 1's bid.

That indicates investors don't expect the deal to happen, and some analysts say the proposal even raises doubts about Pier 1.

"It's an act of desperation," says William Baldwin of Baldwin Anthony Securities in Dallas. "Smith is telling people that he's not confident about turning around Pier 1 as it exists today."

Smith generally gets strong reviews for his execution at Pier 1, but the company is just beginning to turn the corner. Home furnishings and accessories account for the bulk of sales at both Pier 1 and Cost Plus, and the housing industry is still in a deep slump.

Analysts want Pier 1 to rack up more than a single quarter of profit before taking on another money-losing enterprise.

"It's tough to integrate an acquisition when you're trying to make your own company profitable," says Laura Champine, a Morgan Keegan analyst, who has an "underperform" rating on the stock.

Both companies have been stung by the housing downturn and a flood of competitors that now carry similar merchandise, including Target, Wal-Mart and Costco. Pier 1 lost $363 million over the past three years; Cost Plus lost $78 million in the past two.

Since 2005, Pier 1 has lost more than two-thirds of its stock-market value; Cost Plus' market cap fell 87 percent over the same time.

In recent years, both companies replaced their longtime CEOs.

Cost Plus' turnaround hasn't progressed as far as Pier 1's, but it reported two positive trends in the most recent quarter. Same-store sales ticked up after a sharp decline the year before, and customer traffic increased for the first time since 2003.

Both retailers were started almost half a century ago on a pier in San Francisco. They grew into chic retailers, catering to baby boomers with an eclectic mix of imports for the home.

Cost Plus, based in Oakland, Calif., has 295 stores, compared with more than 1,100 for Pier 1. But Cost Plus outlets are almost twice as large, and they sell lots of wine, cheese and imported foods -- almost 40 percent of sales year-round and even more during the winter holidays.

In April, when Pier 1 announced fourth-quarter and full-year results, Smith said the company had been "looking into the abyss" a year earlier and "burning through cash at an alarming rate."

"This is a dramatic turnaround," he told analysts during a conference call, adding that Pier 1 had managed to restore the sense of treasure hunting at its stores.

In a letter to the Cost Plus board, Smith and Chairman Tom Thomas put on the hard sell. They boasted that Pier 1's stock price had appreciated almost 65 percent in the past six months, but that's a selective time frame. Even before last week's decline, the stock was still lower than when Smith was hired; and at $5.55 on Friday, it's well below the $6.69 strike price on Smith's 3 million options.

Smith's letter says that Cost Plus is likely to face increasing liquidity problems. But Champine says that's an exaggeration -- Cost Plus CEO Barry Feld told analysts that the company had sufficient liquidity for its turnaround -- and she notes that Pier 1 burned through $93 million in cash last year.

Smith says the Pier 1 management team is "well-equipped to implement a speedy turnaround at Cost Plus." Maybe so, but Cost Plus managers have been on the case.

Cost Plus closed 13 stores in eight underperforming markets in the first quarter and plans to cut the work force by about 10 percent. It has a new everyday low-price strategy with 10,000 items under $10.

When an analyst congratulated Feld for the positive developments in the fourth quarter, the CEO thanked him and added: "It was only four years in the making."

So Smith is going to parachute into Cost Plus now and make things better, pronto? Considering that Pier 1 expects to keep losing money for a while, he might want to get his own house in top shape first.