Why Pier 1 Imports Inc (PIR) Stock Is STILL in Survival Mode

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Like several other companies, Pier 1 Imports Inc (NYSE:PIR) received a massive boost from the “Trump effect.” Between the Nov. 8 election until the end of 2016, PIR stock gained an impressive 88%. That one event transformed everything, with Pier 1 ultimately rewarding investors and speculators with an 80% return last year.

Unfortunately, events have not turned out favorably for retail stocks. Why Pier 1 Imports Inc (PIR) Stock Is STILL in Survival ModeDespite President Trump’s business acumen, our economy remains a substantial work-in-progress. This is not a criticism of the administration, but rather, an acknowledgement that no one person can solve everything.

PIR stock confirmed this point by shedding a horrific 38% on a year-to-date basis.

It’s difficult to see how Pier 1 Imports is going to work its way out of trouble. Not only are traditional brick-and-mortar retail stores hurting badly, the home furnishings sector offers no respite. Williams-Sonoma, Inc. (NYSE:WSM), which I call the rich person’s Pier 1, has suffered an incredibly choppy year so far. And although it’s not a direct competitor, shares of Home Depot Inc (NYSE:HD) uncharacteristically collapsed recently.

The culprit could very well be that the labor market is much weaker than what the unemployment rate of 4.3% implies. Based on department store share prices, it’s obvious that not enough consumers exist to support all their physical locations. Businesses similar to Pier 1 Imports, such as Bed Bath & Beyond Inc. (NASDAQ:BBBY), are falling off a cliff. People are apparently even skimping on groceries.

If PIR stock is to have any hope of revival, management must send a strong message in its earnings report.

It’s All About the Guidance for Pier 1

For the first quarter of fiscal year 2018, consensus estimates peg PIR stock earnings-per-share to lose 5 cents per share. This is towards the optimistic end of the forecast spectrum, which ranges from a loss of 3 cents at the high to 7 cents at the low.

In the prior year Q1, analysts expected the same 5-cent EPS loss. However, at that time, Pier 1 missed the consensus target, instead registering a 7-cent loss. Obviously, management are looking for something better for this go-around.

So far, the signs are encouraging. From Q1 FY 2017, PIR stock steadily improved, and most importantly, it posted strong earnings beats for its holiday and post-holiday seasons.

Given the broader troubles within retail, it’s hard to see Pier 1 do much more than hit consensus. The company will also fight with the cyclical nature of the industry. Furthermore, consumer sentiment flattened since President Trump took office.

In my view, the PIR earnings report is all about the guidance. Wall Street already expects a tough outing in Q1; hence, the sharp value decline in the past several weeks. What they want to see is a clear strategy on how the company will move forward. Otherwise, things could get very ugly in a hurry.

Unfortunately, the housing market is not doing any favors for Pier 1 Imports. The median home sales price for the first quarter of this year is $306,000. With the average hourly income of Americans at $26.22, this dynamic is hardly sustainable. Even if a family could pony up the cash for over-inflated housing, they have little left to spend on furnishings.

How management answers that thorny question will determine the PIR stock trajectory.

PIR Stock: A Foreboding Atmosphere

Similar to many other industries, Pier 1 is a victim of supply and demand; as in, too much supply and not enough demand. While PIR is doing a good job growing the top-line relative to the competition, the bottom line is disappointing.

Pier 1 used to be a store that delivered profits every quarter. Now, investors can only count on positive earnings during the holidays. Unfortunately, innovation doesn’t really exist in the home furnishings sector. It just comes down to the age-old strategy of strong marketing and high volume. You’re not going to see too many folks buy PIR stock based on its “potential” or its “story.”

Of course, this is the steep challenge facing Pier 1 Imports. Customers enjoy excessive options in the trendy, home furnishing boutique stores. And based on economic indicators, they prefer cheaper outings like Ross Stores, Inc. (NASDAQ:ROST). But when even these bargain retailers are hurting badly, you just have to question the entire industry.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2017/06/pier-1-imports-inc-pir-stock-survival-mode/.

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