Pier 1 Takes Breather

"This past year was a big disappointment for our customers, our shareholders and especially for us," chairman and CEO Marvin Girouard said in the company's earnings conference call Thursday. Store traffic slowed throughout much of the year, the company's advertising was ineffective, and it finished the year without any TV advertising to drive traffic, the Pier I leader said.

Girouard cited factors that rendered fiscal 2005 a difficult year for Pier I as well as the country, among them hurricanes in the Southeast, harsh weather throughout the US, rising fuel prices and "other economic challenges strained middle income customers, particularly with regard to discretionary purchases." Irrespective of any outside forces, however, Girouard said, "We were dissatisfied with our performance and financial results for the year."

Midway through last year, the Pier I chairman said, the company completely reassessed its business, fired its advertising agency and began formulating plans to retrench. As part of the plan to recover, "We have slowed store growth to improve store level execution," Girouard said. Pier I now plans to open 85 new stores and close 25 during this fiscal year, along with opening four new Pier I Kids stores and closing two of them in fiscal 2006. In fiscal 2005, the company opened 104 Pier I stores and closed 37 in North America, opened 10 Pier I Kids stores and closed five, and opened seven international stores.

The year began turning sour for Pier I right after Easter last year, according to Girouard, who said, "Our results were very positive at the beginning of last fiscal year as customer traffic increased through Easter." But then traffic counts "worsened due to a lack of television advertising later in the year."

Pier I cut out its TV advertising because of its "belief that our television campaign was ineffective," Girouard explained, with the company opting to "save the marketing expenditures by not producing more commercials." As a result, it ran no TV commercial from the end of September last year until a new campaign that launched on March 21.

Pier I believes it has now laid the groundwork to return the company to long-term growth and increased profitability, according to Girouard. With the beginning of fiscal 2006 in March, the company began to execute its new plans, which will include high up-front costs to launch major marketing, merchandising and store initiatives supported by additional payroll, in-store visual presentations, improved graphics, and new bags and boxes. The high first-quarter costs, however, "will help us later this year," Girouard said.

To put Pier I back on track, the company will need to improve from earnings per share that dropped to 21 cents in the fourth quarter versus 53 cents in last year's fourth quarter. Earnings plunged to 68 cents from $1.29 on a full year basis.

Sales slid to $525.8 million for the quarter from $555.3 million, and on an annual basis sales increased by about $30 million to nearly $1.9 million. Results for the quarter and the year included a nonrecurring after-tax charge of $3.9 million, or about 5 cents per share, in connection with the restatement of lease-related expenses that virtually all retailers have been including in their financial reports of late in response to a requirement from the US Securities and Exchange Commission.