Pier 1 Imports (PIR) is a specialty retailer reporting its second quarter results before the market opens on September 19. It is one of the great stories in the home-goods sector, though it came incredibly close to bankruptcy in 2009, and traded as low as $0.20. The shares were being traded for dimes because the home furnishings retailer was struggling through a financial crisis, which hit housing-related companies the hardest.
The stock has come roaring back, and is now trading above $20.
It’s worth noting that Pier 1 also has a revenue profile that includes not only decorative items, but also furniture. Furniture makes up around 40% of sales. That’s one of the unique advantages of Pier — shoppers drop by one of its stores to grab a lamp, but come out with a high-priced item, such as a patio set.
Its top category is decorative accessories, which makes up 60% of sales, and furniture makes up the other 40%.
Earnings Look Solid
Pier 1 Imports will announce its Q2 2014 earnings results before the market opens on Thursday, September 19. Pier 1 Imports has set its FY14 guidance at $1.27-$1.32 EPS.
Analysts expect earnings of $0.21 per share, up from $0.19 during the same period last year. The stock has been a decent performer this year, having traded up 14.1% year to date. Analysts have been spot on in three of the past four quarters, so that’s probably a safe bet. And, yes, Pier 1 should earn twice as much this quarter as the market value of the whole company at its 2009 low.
The company continues to see solid performance, posting last quarter EPS of $0.19 compared to $0.16 for the same period last year. This comes on the back of a 9.3% increase in year-over-year sales and 5.9% higher same-store sales.
Pier 1 Imports should continue to benefit from the continued housing recovery. The rise in home buying will not be the only tailwind for the company. As the economy strengthens, there should be a trade up, even in the rental community, whether it is those moving out of their parents’ basement, move-ups from apartments to houses, or just general upgrades in living spaces. Even those who are not looking to move will probably want to spruce up their home interiors as they have more discretionary income to spend and credit to use. Going forward, a combination of disposable income, higher employment and home ownership should push the industry higher.
Hedge Funds Boost Pier 1
In preparation for the third quarter, many of the hedge funds were bullish in this stock, a change of 13% from the first quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their stakes significantly.
As aggregate interest spiked, specific money managers have been driving this bullishness. Columbus Circle Investors had the largest position in Pier 1 Imports, worth close to $68.6 million, accounting for 0.6% of its total 13F portfolio. Tiger Consumer Management has a $54.4 million position; 1.9% of its 13F portfolio is allocated to the company. Remaining hedge funds that are bullish include Carlson Capital, Royce & Associates and AQR Capital Management.
PIR has been the subject of a number of recent research reports. Jefferies announced on Wednesday, August 28, 2013, that it has maintained a “Buy” rating a $28 price target on home product retailer Pier 1 Imports. This price target suggests nearly 20% upside from the stock’s current price of $23.45. Analysts view the stock’s decline as a good buying opportunity.
Analyst John Marrin commented:
“These shares have significantly underperformed the broader market, the retail sector, and almost all of its housing driven retail peers this year and we believe this is highly unjustified given the two solid quarterly reports we’ve seen during this period and the upside EPS potential we see in the back half this year.”
Also, Argus upgraded shares of Pier 1 Imports from a “hold” rating to a “buy” rating and a $27.00 price target on the stock. Deutsche Bank reiterated a “buy” rating and a $28.00 price target on the stock. Finally, Zacks upgraded shares of Pier 1 Imports from an “underperform” rating to a “neutral”.
Pier 1’s most recent earnings report in June consisted of generally upbeat numbers. Its first quarter sales were up 9.3%, and same store sales increased by 5.9%, with earnings up 14% from the same period last year. The economic recovery has helped boost consumer confidence and spending, and it is expected that another strong quarter from Pier 1 will eventuate.
The company was close to bankruptcy during the recession in 2009 but has come back strongly; therefore expect the improved housing market to keep the company growing nicely in the near future. Following the last earnings report the stock ran into selling pressure, but that was mostly a result of weakness in the overall market. Expect to see solid numbers, which will push the stock to trade higher following the report.
Therefore, take advantage of the following options call:
OPTIONS TRADE: Buy the PIR Mar 2014 25.000 call (PIR140322C00025000) at or under $1.40, good for the day. Place a protective stop limit at $0.55 and a pre-determined sell at $2.20.
Visit stock-options-made-easy.com for a wealth of information that will help you benefit from the exciting and lucrative world of options trading.