In the midst of the eCommerce revolution, Pier 1 (NYSE:PIR) doesn’t have what it takes to generate positive returns for the owners of PIR stock.
In all likelihood, the troubled retailer’s results will continue to deteriorate. It may stay in business in zombie-like form for a long time while its results continue to deteriorate like J.C. Penney (NYSE:JCP), declare bankruptcy but still hang around like Sears, or completely disappear. But in any case, investors should avoid Pier 1 stock.
To succeed during the eCommerce era, brick-and-mortar retail chains have to offer great prices (think the dollar stores and TJ Maxx), successfully appeal to the wealthiest 1% of shoppers (a la Tiffany (NYSE:TIF) and Coach, be the far-and-away leader of a specific, popular category (like lululemon (NASDAQ:LULU) and Best Buy (NYSE:BBY) or have the financial firepower to hold their own against Amazon (NASDAQ:AMZN) in eCommerce, i.e. Target (NYSE:TGT) and Walmart (NYSE:WMT).
Pier 1 sells household products that are not especially cheap and don’t appeal to the wealthiest shoppers. It’s not the undisputed leader of the category, and it definitely doesn’t have enough money to build an eCommerce business rivaling that of Amazon. As InvestorPlace contributor Luke Lango pointed out, as of the end of last year, the company had only $11.1 million of cash.
Consequently, it’s not surprising that Pier 1’s results are tumbling, that it’s having huge financial difficulties and that it’s being forced to close hundreds of its stores.
Many major retail chains that also don’t have the ingredients to be successful, from Kohl’s (NYSE:KSS) to Victoria’s Secret to Bed, Bath and Beyond (NASDAQ:BBBY) are closing; stores like Pier 1 and will soon likely be in dire financial straits, too.
None of these chains, including Pier 1, has what it takes to deliver positive returns for medium-term and long-term investors. Only short-term traders can profit from these “loser” retailers.
Financials Look Grim got PIR Stock
The company’s financial results and balance sheet are both horrible. In its third quarter, which ended in November, its same-store sales tumbled 11.4%, and it lost an incredible $14.15 per share of PIR stock.
The company plans to shut down 450 stores, versus the 951 stores it operated as of the end of its Q2. Meanwhile, PIR has over $990 million of debt, and last month Moody’s downgraded its credit outlook to “negative,” indicating that the agency expects the retailer to default on its debt in the near-term.
InvestorPlace columnist Vince Martin noted that PIR will have to shell out cash to lay off employees and close stores, and he expects pressures on its profit margins to accelerate going forward.
A Hail Mary for Pier 1
If I was the CEO of Pier 1, I’d change the company’s name and completely rebrand it. I would try to move the company into one of the niches I mentioned above. Perhaps the company could become a seller of truly high-end home products that could appeal to the wealthiest Americans. Or maybe it could become a discount furniture retailer. Alternatively, it could switch to a different area entirely and look to sell popular “athleisure” clothes.
Such a transformation would, of course, be quite difficult and expensive. But cost-cutting, inventory sales and more borrowing could give Pier 1 enough money to get the job done, and the retailer doesn’t seem to have a better choice at this point.
The Bottom Line on PIR Stock
Pier 1 doesn’t have what it takes to win in the current environment, and its financials strongly indicate that it’s heading for disaster. Although I think that my “Hail Mary” idea could conceivably work, the company probably won’t try it, since, as far as I know, it’s never been done before.
Given all of these circumstances, investors should steer clear of PIR stock.
As of this writing, the author did not own stock in any of the aforementioned companies.