"(The expansion) to 1,197 Pier 1 stores in NorthAmerica has resulted in over-saturation of mostmarkets, which has negatively impacted sales andstore-level profitability," says a recent reportwritten by analysts Ralph Jean, Jeff Schollaert andShawn Tesoro. "We believe that our analysis results ina cogent argument for reducing the store basesignificantly based upon the associated benefit tooperating profitability, cash flow and equityvaluation."
The report also suggests that Pier 1 notopen any new stores during fiscal year 2007. A Pier 1 spokeswoman told GSR that the company couldnot comment on the suggestion to shutter stores.
Wachovia analysts believe that closing 250 Pier 1stores would result in several positives for the homedécor chain. The closings would create an earnings pershare improvement of 55 cents, a 4.4% improvement inoperating margin, a 12.8% improvement in sales per sf,$54 million in additional cash flow; and animprovement in year-end cash balance of $126 million.
The report suggests that the chain closeunderperforming stores with sales of $154 per sf orless, which is 20% below the company average of $193per sf. After closing the units, average sales per sfat remaining stores would likely increase to $218 andstore occupancy costs would be reduced by 20%,according to the Wachovia analysts.
The analysts issued the report just days after Pier 1announced that it had cut its loss during the thirdquarter to $7.2 million, down from $12.5 million inthe first quarter and $10.2 million in the secondquarter. Comp stores sales for the third quarterdecreased 6.5% compared to 12% in the first quarterand 7.7% in the second quarter. Sales during thequarter were $476.2 million, a 2.4% decline from lastyear's $487.7, but an improvement from earlier thisyear.
During the third quarter, Pier 1 continued to expand,opening 29 stores and closing four. It plans to openanother 34 stores during the fourth quarter.
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