Time to Export Pier 1 Imports

By Eric Jackson
RealMoney Contributor
6/28/2010 5:30 PM EDT
Click here for more stories by Eric Jackson

Pier 1 Imports (PIR - commentary - Trade Now) was left for dead five quarters ago. Due to high debt, dwindling sales and a fear that it would go out of business, this well-known provider of cheap home furnishings and knick-knacks saw its stock price drop to $0.10.

By April 21 this year, the stock had rebounded to almost $10 -- a remarkable turnaround. But the stock had come too far, too fast, and in the face of a shaky U.S. consumer, Pier 1 dropped 32% to its current price of $6.56.

The management team and board deserve a lot of credit for persevering and making some smart moves in the company's darkest hours. But is Pier 1 worth $0.10 or $10? Let's review what it did right last year.

Part of the fear surrounding Pier 1 last year was its high debt load. In response, the company cut capital expenditures to $5 million last year from $51 million in 2006. It stopped selling online in 2007, because it hadn't done a good job at it. Marketing spending was cut from $117 million in 2007 to $61 million in 2009. The company closed 250 stores from peak levels (about a 25% decrease) and negotiated lower leases for another 350 stores.

Most importantly, though, the company has reduced its debt to $35 million. Management achieved this by buying it back and renegotiating with lenders. Last year's debt was almost $200 million. At the same time, the company has stockpiled cash, which is up to over $200 million. In 2007, cash on hand had fallen to $6 million.

Pier 1 executives were very proud when they presented their most recent quarterly results a couple of weeks ago. Analysts had expected a quarterly loss, but Pier 1 delivered earnings of $8 million and top-line revenue growth of 14% to $306 million. This was the first Q1 profit for the company in six years.

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