Pier 1 reports loss, lower sales as hedge fund blasts poison pill

Pier 1 Imports reported a loss for its second quarter on lower sales Wednesday but said it’s hopeful that a pickup in store traffic in recent weeks will produce a better second half of the year.

Meanwhile, a hedge fund that has acquired a big stake in the retailer responded to the board’s adoption of a poison pill takeover defense, calling the move “nonsensical.”

The Fort Worth-based home furnishings retailer said its net loss was $4.1 million, or 5 cents per share, for the three months ending Aug. 27, compared with net income of $3.2 million, or 4 cents, in the year-ago period. Net sales decreased 6.7 percent to $405.8 million, and comparable-store sales fell by 4.3 percent.

CEO Alex Smith, who announced this month that he will retire at the end of the year, said the results “reflect soft store traffic levels throughout the second quarter, most notably in July.”

The company saw more customers in stores through August and into September but remained cautious about its outlook. “We feel very good about how the business is positioned for the fall and holidays,” Smith said.

The results were released after the close of trading on Wall Street Wednesday. On Thursday, Pier 1 shares (ticker: PIR) were up 49 cents, or more than 11percent, at $4.76 in morning trading.

The results continue a downward slide for the retailer as it has struggled to adjust to growing online retail sales. Pier 1 has invested heavily in a revamped e-commerce site and “omnichannel strategy” by coordinating online orders with store pickups.

The weak performance has pushed down its stock price, and last week Alden Global Capital, a New York hedge fund, revealed that it had acquired a 9.5 percent stake and engaged the company’s board in discussions about the search for a new CEO and shareholder representation on the board. On Tuesday, Pier 1’s board responded by instituting a “poison pill” shareholder rights plan, which would allow existing shareholders to buy more shares if the stake exceeds 10 percent, making a takeover more expensive.

During a conference call with analysts, there was little talk about the recent shareholder activity, except for Smith to say that his management team has not been distracted.

Asked about the poison pill, Chief Financial Officer Jeff Boyer said the board determined that it was appropriate to “make sure all shareholders can participate and benefit from appreciation of the company.”

But in a statement, Alden President Heath Freeman said he was surprised and disappointed by the move, which was made four days after he met with Pier 1 Chairman Terry London. He called the poison pill “a nonsensical scare tactic being used by the board to make us appear to be a threat.”

“At no point during our discussions have we mentioned anything even close to an intention or interest in acquiring Pier 1. It is therefore entirely disingenuous for Mr. London to assert that the poison pill is required to guard against coercive or unfair tactics to gain control of the company,” he said.

In a separate move, Pier 1’s board approved a $750,000 retention bonus for Boyer, payable on March 22, 2018, if he is still employed or if his employment is terminated earlier without cause.

This story was originally published September 28, 2016 at 3:40 PM with the headline "Pier 1 reports loss, lower sales as hedge fund blasts poison pill."