Post-Election Rebound Has Been Good To Pier 1 Imports

Daniel Binder of Jefferies commented in a research report following the earnings release that Pier 1 Imports' earnings beat was a direct result of strong post-election sales along with better merchandise margins.

The analyst also highlighted the company's improvements in marketing, a better web conversion and the lowering of the free shipping threshold.

Strong Sales

Binder expanded and noted that in addition to exceeding Wall Street's expectations on the revenue line, comps of 1.8 percent exceeded the Street's expectations of a 1.1 percent decline and his own expectations of a 0.5 percent decline.

Binder added that sales also benefited from a "very strong" performance in the online business throughout Thanksgiving and Cyber Monday, where sales grew 28 percent year-over-year in contrast to industry wide trends.

"November results track with what we have seen post-election in various consumer confidence measures, which we believe to be important to higher-ticket purchases such as furniture," Binder wrote.

Gross Margin

Binder also stated that Pier 1 Imports' higher gross margin helped better sales flow through to the bottom line. Merchandise margins improved 400 basis points on a year-over-year basis to 60.2 percent due to lower markdowns, improvements in the supply chain and a more effective promotional activity.

Perhaps more important is the fact that the company appears to have overcome the excess inventory issues, which resulted in poor margin readings over the past year.

Now What

Finally, Binder suggested that Pier 1 Imports is tracking near the high end of its comp guidance of negative 1 to positive 1 percent, but last year's promotional activity throughout January could end up being a comp headwind this year.

Shares remain Hold rated with a price target boosted to $7.25 from a previous $4.50 after comp sales turned positive and margins recovered amid less markdown activity and a better promotional balance.

However, the company's high gross margin does make the company vulnerable in an increasingly competitive industry.

At last check, shares of Pier 1 were up 31.33 percent at $8.51.