Perennial value trap Pier 1 Imports (PIR) is at it again, with PIR stock swooning after taking yet another axe to guidance.
Yes, retail is a brutal, cyclical business. It feels like retail chains are either thriving or dying, with little or no stability in between. Just look at a two-year chart for Macy’s (M), the sector’s former market darling.
But PIR is a different story. This thing has looked like a bargain many times since topping out about two-and-a-half years ago and it still hasn’t found a bottom. Pier 1’s long decline was sparked by management having to slash its outlook, and all these quarters later, the story hasn’t changed.
PIR is doing what it can to manage soft sales and pricing pressures. It’s closing underperforming stores as they come off lease and plowing money into its e-commerce operations.
It hasn’t made a difference.
That’s at least partly because Pier 1 is swimming against the macroeconomic tide. Consumer spending on household furnishings has been stagnant for more than two years. Shares in competitors like Williams-Sonoma (WSM) and Tuesday Morning (TUES) have been hammered too.
It’s an ugly collection of stocks, and PIR isn’t going to somehow break out when it keeps cutting guidance on lower-than-expected sales. Some people say that when you’re the CEO of a publicly traded company, the No. 1 job is to manage Wall Street’s expectations.
PIR Is Having a Crummy Christmas
On Wednesday, Pier 1 blew it again. The company reduced its outlook for the second time this year after quarterly earnings revealed a 2.5% decline in sales and a 0.7% drop in same-store sales.
It gets worse. PIR expects current quarter same-store sales — an important measure of a retailer’s health — to fall anywhere between 2% and 4%. We’re talking about the holiday shopping season here.
PIR blames a decline in “the casual in-store shopper,” which certainly jibes with the macroeconomic data we see in the consumer expenditures survey. Too bad there’s no sign of a letup.
Millennials aren’t contributing to household formation. Hell, more of them are living with their parents today than during the depths of the Great Recession. The rate of home ownership hasn’t been this low in almost 50 years.
Bottom Line for PIR Stock
PIR is trying to reverse a multiyear drop in gross margin by cutting inventory levels and making itself smaller. That’s a formula for making a declining business more profitable, but growth is another matter.
No, PIR stock isn’t in danger of going to zero. The balance sheet is in better shape now than it was when it considered filing for bankruptcy protection a few years ago.
But that still doesn’t make it a rebound play — or a short squeeze candidate.
If there’s a way to navigate turbulent demographic waters, Pier 1 Imports hasn’t found it. All it has shown is that as bad as things are, they can still get worse.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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