Credit Suisse Shows Concern Over Pier 1 Sales

Pier 1 Imports Inc PIR reported disappointing Q2 sales. The company’s results reflect “the challenges of effectively driving sales and stabilizing margins in an increasingly competitive category, particularly as the industry nears a seasonally more important holiday period on a weaker foot,” Credit Suisse’s Seth Sigman said in a report.

Analyst Seth downgraded the rating on Pier 1 from Neutral to Underperform, while reducing the price target from $4.50 to 4.00. He cited the reasons for the downgrade as:

1. The weaker Q2 sales
2. Continued underperformance relative to the industry
3. Greater margin pressure due to the risk of more aggressive promotional activity to boost sales
4. Management uncertainty, given the expected departure of CEO Alex Smith

Weak Performance, Estimates Lowered

Commenting on Pier 1’s Q2 sales performance, Seth pointed out that although the sales deceleration seems to be in-line with that experienced by others in the sector, the company should have had a calendar benefit from Memorial Day shifting from Q1 to Q2. He added that there is downside to the company’s guidance for 2016.

The analyst reduced the EPS, EBITDA and comp estimate for 2016 from $0.38 to $0.24, from $120.1 million to $100.3 million and from +0.1 percent to -2.3 percent.

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