The recession forced many U.S. home goods chains like Pier 1 to give themselves a make-over, and their changes in pricing and merchandising are bringing shoppers back to stores.
Pier 1 Imports Inc. beat quarterly profit estimates on Thursday as fewer promotions and tight cost controls boosted margins, and merchandise improvements attracted more shoppers.
This was the fourth consecutive quarterly profit for the Fort Worth, Texas-based retailer after years of losses during the housing downturn and the recession.
"Our return to profitability and beyond is firmly on track," Chief Executive Alex Smith said. "We are all extremely upbeat about short and long-term prospects for our company."
The company, whose wares range from wicker chairs to wine glasses, has managed its inventory tightly, reducing the need for markdowns and clearance events. The retailer said it was "well-positioned" on the inventory front for the holidays.
Under Smith's leadership, Pier 1 has shed jobs, pruned its store base, negotiated with landlords to reduce rents, and made merchandising changes.
It began offering more decorative furniture items such as end- and side-tables rather than bulky pricier goods like couches and armoires. While it offered fewer items in large numbers in prior years, Pier 1 is now giving shoppers more choice.
"It is somewhat of a treasure hunt environment ... The more SKUs (items) that are in the store, the more likely you are to find something that you want to buy," BB&T Capital Markets analyst Anthony Chukumba said, adding that those changes have been instrumental in its recent sales success.
Net income was $14.4 million, or 12 cents a share, in the second quarter that ended Aug. 28, compared with a year-earlier loss of $15.8 million, or 17 cents a share.
Analysts on average were expecting a profit of 11 cents a share, according to Thomson Reuters I/B/E/S.
Chukumba, who has a "buy" rating on the stock, also lauded the retailer's decision to stock more seasonal goods.
Pier 1 shares, which at Wednesday's close had dropped about 19 percent from their 52-week high set in April, were up 6.7 percent at $8.49 on Thursday.
Many home goods retailers reworked their merchandising and pricing strategies to salvage sales as they watched Linens 'N Things, once the No. 2 U.S. home goods chain, and smaller players like Gottschalks become casualties in the downturn.
Sales rose 8.1 percent to $309.9 million, compared with analysts' estimates of $310.1 million. Sales at stores open at least a year rose 11.2 percent.
The company, whose rivals include Bed Bath & Beyond Inc., Williams-Sonoma Inc. and Cost Plus Inc., said merchandise margins were 58.3 percent of sales in the quarter, compared with 52 percent a year earlier.
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