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FORT WORTH, TX-As Pier 1 Imports Inc. continues its struggle to raise revenue and increase profitability, its losses for the second quarter narrow a bit to $43.9 million versus a $73.1-million drop in the same quarter a year ago. Comp-store sales fell 3.6% in second quarter, compared with a 5.4% decline in this year’s opening quarter.

Total second-quarter sales were $344.6 million. That represents a 7%-decline from $370.7 million in the same quarter of 2006. Store occupancy expenses for the quarter ended this Sept. 1 were down $2.5 million from second-quarter 2006. Other expenses dropped more dramatically and were $35.6 million less than the year-ago quarter. Chief among the contributors were savings of about $14 million in marketing costs and $13.9 million in payroll.

Trimming costs is key to the turnaround effort, and, during a conference call, management said it estimates savings of “at least $100 million for the year.” It expects on-going annual savings of $150 million as it improves efficiency and simplifies all aspects of its organizational structure.

Re-merchandising the mix is equally important, especially in light of “the impact of the macro environment on home retailers,” said Alex W. Smith, president and CEO, during a conference call. He said he does not expect the Federal Reserve Board’s September cut in interest rates will (positively) impact Pier 1′s business.

Under these circumstances, Pier 1 is moving away from high-ticket furniture and focusing on “impulse, pick-up items and smaller décor items,” Smith said. As evidence of what he called “seedling success” of this effort, he reported that Pier 1 classic candles were number one in unit sales this month.

For the first time, the store has added Halloween décor to its harvest season, and “festive décor” is a best seller,” he added. There is also a focus on home textiles, which, while not yet in all stores, is showing “nice gains,” he said.

In all, the company has added 2,000 new stock keeping units that are starting to hit stores. He called 2,000 skus, “a rolling number,” and noted that new merchandise would be added on a regular basis. “Festive décor is very sku-intensive.”

Management refers to its strategy variously as a return to basics or a re-invention of the original Pier 1 brand. Smith said it is being “reinterpreted for today’s consumer.” Wicker and bamboo seating, a hallmark of the early stores, “is coming back to life,” he said, predicting it would do particularly well next spring.

Merchandising and signage are also undergoing changes. The front of the stores will be re-merchandised monthly. The advertising budget is centered on mailers to current and new customers. Each mailer has a primary merchandise theme, related to the theme in stores in order “to showcase the broadened merchandise assortment,” Smith said.

Shares of PIR on the NYSE closed at $6.13 a share, down 4.7% for the day on Sept. 20, following the conference call. This compares with a 52-week high of $9.06 a share this June 18, and a 52-week low of $5.77 a share this Aug. 16.

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