Pier 1′s Comeback Ain’t Over Yet

But investors yawned at the company's impressive quarter

   
Pier 1′s Comeback Ain’t Over Yet

Pier 1 Imports (NYSE:PIR) has been quite the turnaround story.

The home-furnishing retailer has climbed — or soared, really — since hitting a financial-crisis low of just 11 cents per share and facing a near brush with bankruptcy. Pier 1 has been hard at work remodeling stores, increasing online offerings and appeal, improving its broad assortment of unique home goods and, in the end, getting things back on track.

And “so far, so good” is probably an understatement. Thursday’s second-quarter earnings report marked 12 straight quarters of revenue growth and seven consecutive improvements on the earnings front. It’s almost no wonder that investors have been flocking to the stock, sending PIR’s price up 50-fold since its early 2009 low.

Things have been looking just as strong lately as well: PIR has gained 72% in the past year, including a 40% climb since Jan. 1.

That’s a pretty stellar track record … which of course means nothing if Pier 1 can’t keep it up.

Right off the bat, though, there are several good signs for PIR investors:

For one, there’s the Q2 earnings report, complete with better revenues, profits and widening margins. Pier 1 sold $368 million worth of furniture, frames, vases and much more, for a profit of $26.2 million, or 24 cents a share — an 8% jump in revenue year-over-year and a whopping 58% growth in net income.

Throw in predictions that consumer spending is supposedly set to explode in the near future, along with the company’s online expansion push, and things look pretty good.

Yet after its impressive report, the stock hasn’t seen any pop. In fact, PIR fell by more than 2% at midday.

What gives?

One issue could be that a good chunk of that income jump came from an interest tax benefit — not, of course, from double-digit sales growth. Factoring in that tax benefit and other exceptions, adjusted earnings came in at 19 cents, hitting Wall Street expectations right on the nose, but not beating ‘em.

That’s not bad, per se, and it’s better than missing estimates — but considering the generally low bar of earnings estimates anyway, it’s not good, either.

It’s also getting kind of old. Pier 1 has met analyst estimates to the penny for the past five quarters, so it’s no surprise that yet another similar repeat would cause investors to shrug.

Plus, while online is a good push, it’s the company’s only push for expansion … save a few additional stores here and there. For the most part, the company is instead focusing on remodeling its existing stores. Such tweaks and updates might have helped the company snatch back foot traffic lost during the recession, but will they really be enough to lure in more customers now? Right now, consumers care about the bottom line, and there’s little you can do to a home-furnishing store’s interior that would trump good ol’ discounts.

That said, PIR’s comeback doesn’t look quite over yet.

Pier 1 raised its full-year earnings guidance from $1.10 to $1.16, up from its previous view of earning $1.08 to $1.14. And that over the next five years, Pier 1 is expected to grow more than 18% annually.

The chain’s current P/E is well below both the industry average and its own historical high. It’s forward P/E of 14.6 is also just a tick higher than competitors like Target (NYSE:TGT) and Bed, Bath & Beyond (NASDAQ:BBBY), so it’s still reasonably valued despite a healthy run-up.

Pier 1 also is getting it right on the cash end of things. The company has more than $217 million tucked away against just $9.5 million in long-term debt, and it instituted a dividend (for a scant current yield of 1%) earlier this year that’s well within its means.

Shares aren’t being snatched up today, but the bottom line is that Pier 1 is growing its bottom line, and poised to keep it up. Investors won’t keep running from success forever.

As of this writing, Alyssa Oursler did not own a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2012/09/pier-1s-comeback-aint-over-yet-pir/.

©2014 InvestorPlace Media, LLC

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