In Q1, Pier 1 Imports reached its 11th consecutive quarter of increases in comp store sales and profits. There was strength in all categories of merchandise and in all geographical areas.
There was strong customer response to Pier 1 Import's outdoor spring and Easter products. The company had strong sales gains in May during Mother's Day and Memorial Day weekends. The customer is still cautious, however, and will only spend limited dollars. Accordingly, Pier 1 Imports has not been able to pull back from its safe pricing strategies. About half of its sales are promotions or clearance and the other half is regular price.
Pier 1 Import's investment in marketing is helping sales. It is adjusting in real time its marketing vehicles to use those that are most effective. Its television campaigns have been successful and it plans to market on national cable television this year. It has found that the more it spends on social media, the more it must spend on television and radio because they need something to talk about.
The company will also soon be launching Pier 1 To-You. This will increase the level of paid search in digital media, increase the awareness of pier1.com, and drive traffic to its sites. Pier 1 Imports has completed the buildout of its fulfillment space in Mansfield, Texas, and is receiving inventory. It will be crediting the stores for orders that come from the area around the store to give them a stake in encouraging the online business. It will encourage people to pick up at the store to avoid shipping and hope that 50 percent of orders will be in-store pickup. The price online will be the same as the price in the stores.
Pier1 To-Go currently accounts for 1 percent of its same store sales. Under Pier1 To-Go, the customer can order online and pick up the inventory that is in store. The number of visitors to its site and the time spent on the site is increasing. In conjunction of the launch of Pier 1 To-You, the company will be executing its new e-commerce website. Pier 1 Imports will first put on its website its existing assortments. It will then add categories that it does not sell in the stores and expand the existing categories. Finally, it will leverage Pier 1 Imports into whole new areas.
Pier 1 Imports will be implementing its new point-of-sale system in a few stores this fall. It plans to integrate this system with its e-commerce site by the summer of 2013.
In Q1, Pier 1 Imports opened
new stores in Redwood City, California, and Brownsville, Texas. It
plans to open 20 to 25 new stores in fiscal year 2013, which includes
6 to 8 relocations. It is also refurbishing approximately 100
stores with enhanced fixtures and improved lighting. The stores that
have already been refurbished are producing positive returns. The
total number of stores are 1,054, of which 973 are in the United
States and 81 are in Canada.
At the end of March, Pier 1 Imports moved its reward card business to Alliance Data Systems and new cards were issued to 1 million customers in May. Sales on the card have increased considerably since the transition. Reward customers spend 2 to 3 times more than non-reward customers. In the last 2 years, the rewards card has been 21 percent of Pier 1 Import's business. It anticipates the reward card business will soon increase to 25 percent and ultimately to 30 percent of its business.
Financials.
In Q1, total sales increased 7.9 percent, with increases in both store traffic and the average ticket. Comp store sales increased 7.2 percent. Sales per square foot on a trailing 12-month basis were $187 versus $171 in Q1 2012. For fiscal year 2013, Pier 1 Imports expects sales growth in the mid single digits.
Margins were 60.2 percent in Q1, an increase of 40 basis points. Pier 1 Imports' markdown percentages have decreased significantly over the past few years. At this point, its markdown percentage is sufficient to give itself enough flexibility to move out the slow-selling merchandise in a timely manner and bring in new merchandise. It does not see any further decreases in the markdown percentage. Promotional pricing will stay at the current level until the economy improves.
Marketing expenses were 5 of percent of sales versus 4.9 percent of sales a year ago. Because Pier 1 Imports is shifting the timing of its marketing expenses between the second and third quarter, marketing expenses will increase by 30 basis points in the second quarter compared to last year and third quarter marketing expenses will decrease by 30 basis points.
Earnings per share were $.16 per share an increased of 33 percent. Pier 1 Imports has raised its guidance and believes earnings per share for 2013 will increase 15 to 21 percent to $1.08 to $1.14. The fiscal year this year is 53 weeks, and Pier I Imports expects the extra week to add $.01 to $.02 to earnings per share.
Pier 1 Imports expects inventories to increase approximately 10 percent by the end of Q2 due to increased inventory to support its new e-commerce business, earlier receipts of Halloween and holiday merchandise, and an increase in certain categories where sell-throughs have been strong. At the end of fiscal year 2013, inventories should be slightly higher than at the end of fiscal year 2012.
At the end of Q1, Pier 1 Imports had $217.9 million in cash and cash equivalents, with no debt.
Pier 1 Imports paid a $.04 dividend in
Q1, for a total amount of $4 million. It repurchased 2.9 million
shares of common stock at an average cost of $17/share and it has
repurchased 450,000 more shares since the end of Q1. 44.1 million
shares remain to be repurchased under the current share repurchase
program.
The full transcript of the earnings conference call can be found on Seeking Alpha at the following link:
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