Market Overview

Pier 1 Imports, Inc. Reports Fourth Quarter and Full Year Fiscal 2018 Financial Results

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Pier 1 Imports, Inc. (NYSE:PIR) today reported financial results for the
14-week fourth quarter and 53-week fiscal year ended March 3, 2018.
Except where indicated, fourth quarter and full year comparisons reflect
the 14-week and 53-week periods ended March 3, 2018, and the 13-week and
52-week periods ended February 25, 2017.

Fourth Quarter Fiscal 2018 Highlights

  • Net sales decreased 3.1% to $512.2 million, which includes
    approximately $27.5 million from the 14th week in the
    Company's fiscal 2018 fourth quarter;
  • Company comparable sales on a 13-week basis decreased 7.5%;
  • E-Commerce sales penetration reached approximately 25%; and
  • Earnings per share of $0.19 (GAAP) and adjusted earnings per share of
    $0.21 (non-GAAP), including an estimated benefit of approximately
    $0.04 per share from the 14th week in the Company's fiscal
    2018 fourth quarter.

Full Year Fiscal 2018 Highlights

  • Net sales decreased 1.6% to $1.8 billion;
  • Company comparable sales on a 52-week basis decreased 2.0%;
  • E-Commerce sales exceeded $450 million, with sales penetration
    reaching approximately 26%;
  • Earnings per share of $0.14 (GAAP) and adjusted earnings per share of
    $0.21 (non-GAAP);
  • Generated positive cash flow from operations of $66 million; and
  • Established new executive leadership team and developed three-year
    strategic plan now in initial phase of implementation.

"Our financial performance in fiscal 2018, and specifically the fourth
quarter, underscores the urgent need for change, which we are addressing
in the three-year strategic plan we will present tomorrow," said
Alasdair James, President and CEO. "In fiscal 2019, we will be investing
in the tools and resources needed to execute against the plan. We are
confident in the potential of the business to respond and have already
begun implementing new initiatives across sourcing, supply chain,
stores, merchandising, marketing and promotions. These investments will
pressure profitability in the near-term, bringing us to an expected net
loss for the full year in fiscal 2019, but are expected to drive sales
growth and profitability in fiscal 2020 and 2021 and are necessary to
help us return the business to a sustainable growth trajectory. We look
forward to sharing our three-year strategic plan and financial outlook
tomorrow at our Analyst Day."

Fourth Quarter Fiscal 2018 Results of Operations

Net sales for the fourth quarter of fiscal 2018 decreased 3.1% to $512.2
million, compared to $528.4 million for the fourth quarter of fiscal
2017. Company comparable sales on a 13-week basis decreased 7.5% versus
the year-ago period. E-Commerce represented approximately 25% of net
sales in the fourth quarter of fiscal 2018, as compared to approximately
20% of net sales in the fourth quarter of fiscal 2017. Taking into
account e-Commerce orders placed in or picked up in-store, approximately
90% of the Company's fourth quarter fiscal 2018 net sales directly
touched a store.

Gross profit for the fourth quarter of fiscal 2018 totaled $189.7
million, or 37.0% of net sales, compared to $206.9 million, or 39.2% of
net sales, for the fourth quarter of fiscal 2017. Merchandise margin
(the result of adding back delivery and fulfillment net costs and store
occupancy costs to gross profit) for the fourth quarter of fiscal 2018
totaled $284.8 million, or 55.6% of net sales, compared to $299.5
million, or 56.7% of net sales, for the fourth quarter of fiscal 2017,
reflecting increased promotional activity. Contribution from operations
(gross profit less compensation for operations and operational expenses)
for the fourth quarter of fiscal 2018 totaled $99.5 million, compared to
$118.5 million last year.

Selling, general and administrative ("SG&A") expenses for the fourth
quarter of fiscal 2018 were $148.2 million, or 28.9% of net sales,
compared to $148.5 million, or 28.1% of net sales, for the fourth
quarter of fiscal 2017. The following table details the breakdown of
SG&A expenses for the fourth quarter of fiscal 2018 as compared to last
year (in millions).

  14 Weeks Ended   13 Weeks Ended
March 3, 2018 February 25, 2017
Expense   % Sales Expense   % Sales
 
Compensation for operations $ 65.8 12.9 % $ 64.5 12.2 %
Operational expenses 24.4 4.8 % 24.0 4.5 %
Marketing 23.0 4.5 % 24.2 4.6 %
Other selling, general and administrative   35.0 6.8 %   35.8 6.8 %
Total selling, general and administrative $ 148.2 28.9 % $ 148.5 28.1 %
 

Operating income for the fourth quarter of fiscal 2018 was $27.9 million
compared to $44.8 million last year. Net income for the fourth quarter
of fiscal 2018 totaled $15.1 million, or $0.19 per share. Adjusted net
income (non-GAAP) for the fourth quarter of fiscal 2018 was $16.6
million, or $0.21 per share, and excludes $1.5 million, or $0.02 per
share related to the tax effect of regulatory costs relating to an
ongoing Consumer Product Safety Commission ("CPSC") inquiry. In the
fourth quarter of fiscal 2017, net income was $26.6 million, or $0.33
per share, and adjusted net income (non-GAAP) was $27.8 million, or
$0.34 per share. Adjusted net income in the fiscal 2017 period excludes
costs related to the departure of the Company's former CEO and the
related tax benefit. EBITDA (earnings before interest, taxes,
depreciation and amortization) in the fourth quarter of fiscal 2018 was
$41.5 million compared to $58.5 million in the fourth quarter of fiscal
2017. A reconciliation of non-GAAP measures to GAAP is provided
below.

Full-Year Results of Operations

Net sales for the fiscal year ended March 3, 2018, were $1.8 billion, a
decrease of 1.6% from fiscal 2017. Company comparable sales on a 52-week
basis decreased 2.0%. E-Commerce represented approximately 26% of net
sales in fiscal 2018, compared to approximately 20% in fiscal 2017.

Gross profit for the fiscal year ended March 3, 2018, totaled $658.1
million, or 36.6% of net sales, compared to $697.3 million, or 38.1% of
net sales, for the fiscal year ended February 25, 2017. Merchandise
margin for fiscal year 2018 totaled $1.0 billion, or 57.1% of net sales,
compared to $1.0 billion, or 57.3% of net sales, for fiscal year 2017,
reflecting increased promotional activity, partially offset by supply
chain cost savings. Contribution from operations totaled $329.5 million
for fiscal year 2018, compared to $360.1 million last year.

Fiscal 2018 SG&A expenses were $576.9 million, or 32.1% of net sales,
compared to $587.8 million, or 32.1% of net sales, during fiscal 2017,
reflecting ongoing cost control measures. The following table details
the breakdown of SG&A expenses for the fiscal year ended March 3, 2018,
as compared to last year (in millions).

  53 Weeks Ended   52 Weeks Ended
March 3, 2018 February 25, 2017
Expense   % Sales Expense   % Sales
 
Compensation for operations $ 239.9 13.3 % $ 249.7 13.7 %
Operational expenses 88.8 4.9 % 87.6 4.8 %
Marketing 105.6 5.9 % 104.4 5.7 %
Other selling, general and administrative   142.5 7.9 %   146.1 8.0 %
Total selling, general and administrative (1) $ 576.9 32.1 % $ 587.8 32.1 %
 
(1)   The period ended March 3, 2018, includes legal and regu
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