Declines in sales, merchandise margin and gross margin—combined with a difficult environment for all of retail—brought red ink to Pier 1 Imports bottom line in its fiscal first quarter ending May 28.

The specialty retailer reported a net loss of $6 million, compared to net income of $6.9 million in last year’s first quarter. Net sales totaled $418.4 million, down 4.2 percent and including a 2.5 percent drop in same-store sales.

“Overall, our top-line results in the first quarter were below our plan,” said Alex Smith, Pier 1’s president and CEO, during a conference call to financial analysts. “We had some categories that performed exceptionally well, tabletop for instance, but that was not enough to pull up our chain average. Our shortfall came principally in outdoor furniture, the result of some new product misses and a reduction in the number of floor models.”

Merchandise margin finished the quarter at 55.6 percent, down 230 basis points from the first quarter of last year, the result of enhanced clearance and promotional activity. Gross margin fell 330 basis points to 35.6 percent. Selling, general and administrative expenses declined by 0.8 percent in dollars but rose 124 basis points as a percentage of sales, to 34.1 percent, as the Pier 1 organization’s efforts to improve efficiencies were somewhat offset by increased spending on marketing.

One bright spot for Pier 1 was the 40 percent increase in online sales. “Well, clearly we are experiencing the same customer trends as the industry generally, namely the ongoing movement to purchase outside a store,” Smith said.

A bright spot going forward is the company’s efforts toward reducing costs. “Our multiyear project to improve the efficiency of our business is going well,” Smith said. “We expect the efficiency improvements and cost reductions that come from this project to add to our profitability over time. We are also developing short and long-term plans that will allow us to improve productivity and capture savings within our supply chain.”

For the second quarter, Pier 1 forecast net sales to decline by from 1 to 3 percent, including same-store sales ranging from a 1 percent decline to a 1 percent gain. Those percentages should also apply to its full-year results, Pier 1 said.

(Source: hfndigital.com  Author: David Gill)