Pier 1 Bulls And Bears Make Their Cases Following Mixed Q4 Results

A bull-bear confrontation brewed following the release of mixed fourth-quarter results for Pier 1 Imports Inc PIR. While Loop Capital Markets, the bull in this scenario, expressed increasing confidence in the company's ability to drive top-line and earnings growth in the second half of 2017, UBS, the bear, expressed skepticism at the improvement in the financials over the past couple of quarters.

The Catalyst

Pier 1 Imports reported Wednesday after the close fourth-quarter adjusted earnings per share of $0.34 on revenues of $528.4 million, down 2.6 percent. The results were in line with the company's March pre-announcement.

For the first quarter, the company estimates a loss of $0.07–$0.03 per share on flat to a 1 percent increase in sales. Comp guidance was for 1–2 percent year-over-year growth. The company expects full-year earnings per share of $0.46–$0.52.

Increasingly Confident In Pier 1 Imports

Loop Capital Markets said it is increasingly confident that the company will continue to drive top-line and earnings growth in the second half, as year-over-year comparisons become more difficult. The firm noted that comparisons get easier in the first half of 2017.

Analyst Anthony Chukumba said Pier 1 Imports remains its favorite small capitalization idea in the specialty hardlines retailing space. The analyst also noted that the 2017 guidance was in line with expectations.

"Pier 1 ended F2016 on a high note in our opinion, particularly given the unfavorable weather headwind," the analyst added.

Uncertainty Surrounding This Year Remains

While noting that Pier 1 Imports' first-quarter comp guidance would essentially mean a two-year stack of a -1.5 to -0.5 percent drop, given the year-ago comp performance of -2.5 percent, UBS said it expects merchandise margins to stabilize around current levels. However, the firm expects higher fulfillment costs to put incremental pressure on operating margin in the future.

"We model FY'18 EPS of $0.43, which compares to the company's guidance of $0.46–$0.52," UBS said.

With the stock now trading at 14 times NTM P/E, UBS analyst Michael Lasser said it's best to approach the stock with caution.

Rating/Price Target

Loop Capital Markets reiterated its Buy rating and $12 price target on the shares of Pier 1 Imports. On the other hand, UBS has a Sell rating and a $4 price target.

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