Back in 1962, tech executives Charles Tandy and Luther Henderson started Pier 1 Imports (NYSE:PIR) in San Mateo, California. The vision was to create a furniture importer that would focus on liquidating excess inventory. And yes, it was an instant success and benefited tremendously from the growth of the Baby Boomer generation.
But unfortunately, the company’s future is very much in doubt. PIR stock really tells the story. Since 2015, the shares have lost virtually all of their value.
In June, there was a 1-for-20 reverse split of PIR stock, so as to meet the minimum listing requirements for the NYSE. But the price has kept on falling.
What’s Wrong Here?
The latest earnings report was downright horrific. Note that the comparable sales plunged by 11.4%. As for the net sales, they dropped by 13.3% to $358.4 million and the net loss ballooned to $59 million to $14.15 per share.
The cash balance? It dropped to a mere $11.1 million. Although, Pier 1 does have $158.5 million remaining available for cash borrowings, it will not last long.
In November, the company did bring on a new CEO — that is, the company’s Chief Financial Officer, Robert Riesbeck. Consider that he actually has much background in dealing with retail bankruptcies.
His two other stints were at Fullbeauty Brands and hhgregg. He also worked for private equity firm Sun Capital Partners, which has expertise in working with tough corporate situations. It’s also important to note that Pier 1 has retained other advisors with experience with restructurings like AlixPartners LLP, law firm Kirkland & Ellis LLP.
As should be no surprise, debt rating agencies have dire views on Pier 1. For example, this year S&P Global Ratings downgraded the existing liabilities to junk levels and noted there was a risk of bankruptcy.
Granted, Riesbeck has been swift in taking drastic actions. Last month, he announced that there would be a shutdown of up to 450 locations, representing about half of the footprint. There would also be closures of distribution centers as well as cost cutting for corporate expenses. All these actions came after the consent of the lenders of the Revolving Credit Facility.
However, the restructuring plan may be too late for PIR stock. Here’s what Moody’s president and senior analyst Raya Sokolyanska had to say:
“As Pier 1’s losses deepen, the planned large-scale store closures and cost cuts will likely be insufficient to turn around the business in time to address the company’s looming debt maturities, making restructuring or bankruptcy highly likely scenarios. Increasing competition in the sector from online players, mass merchants and off-price retailers is compounding Pier 1’s already challenging turnaround.”
Bottom Line on PIR Stock
Of course, the story of Pier 1 is nothing new. Over the years, the company failed to evolve to the new realities of the marketplace. Because of this, tech operators like Amazon (NASDAQ:AMZN) and Wayfair (NYSE:W) have filled the void.
In fact, according to the third-quarter financials, Pier 1 disclosed a “going concern” warning, which essentially means that there are not enough cash resources to last for the next 12 months. While this does not mean that bankruptcy is inevitable, it is still very grim.
And given the deteriorating financials and harsh retail environment, the company will certainly have a tough time ginning up interest in a new financing. In other words, there is little reason for being a bull on the stock for now.
Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
