Dive Brief:
- Pier 1's first quarter showed again why the home furnishings retailer needs a turnaround plan. Net sales in Q1 fell 9.2% year over year to $371.9 million, and comparable sales fell by 8.2%, according to a company release. Its net loss widened dramatically — by 850% — to $28.5 million from $3 million in the year-ago period.
- Low as those numbers were, the company said they fell in line with expectations and held their guidance for the current fiscal year, which projects positive comps of 1.5% to 2.5% and a net loss of $29 million to $14 million. But Q1 missed analyst expectations on comps, falling 0.5% short of the FactSet consensus, cited by MarketWatch.
- CEO Alasdair James said on a Wednesday conference call, according to a Seeking Alpha transcript, that his team expects comps to turn positive in the third quarter, when "our new merchandise, marketing and store format begin to roll out in earnest."
Dive Insight:
The list of areas where Pier 1 needs to improve is long. As Jeffries analysts led by Daniel Binder put it in a note Thursday, the company is in for a "heavy investment year" as it addresses "sourcing, merchandising, pricing, marketing, store ops, e-com and supply chain."
James said the company is already at work executing various initiatives. Yet there is, in Binder's words, "lots of work ahead" for the management team. The retailer faces a hyper-competitive landscape, with Target, Walmart, Amazon, TJX Cos., Wayfair and others diving deeper and deeper into the home category and driving prices down.
As James outlined in the Thursday call, his team's initial priorities are relaunching the Pier 1 brand, under a new slogan ("Pier 1: This is me") and "with a compelling point of view and price value equation," improving the shopping experience, growing its e-commerce business to complement the aforementioned shopping experience and tightening the supply chain.
All of that is going to cost money at the outset, of course. The marketing campaign — which will roll out across the retailer's catalog, digital and social media channels as well as through television spots — is going to cost $20 million by the end of Q2, James said. Chief Financial Officer Nancy Walsh said that for Q1 the company made $12.2 million in capital expenditures, directed toward Pier 1's supply chain, technology and stores. The company is on pace to spend $45 million during the fiscal year on the company's turnaround plan.
The investments could well pay off. James said the company was playing around with design and store format in a control group of 22 Dallas-area stores. Changes include widened aisles and opened site lines, as well as a more "cohesive" presentation and store floors that were merchandised "more creatively," James said.
"Customers tell us the stores are more vibrant, fun and inspirational," he added. "Performance has been positive across many of our key metrics including traffic and units, and online sales, and we are seeing good velocity in many important categories such as decorative accessories, all out, textiles and tabletop." The plan for now is to roll out the changes to a third of Pier 1's nearly 1,000 stores before the holiday season.
But, as Binder noted — and as S&P analysts noted last month when downgrading Pier 1's credit — there is plenty of execution risk in the company's three-year plan. "[W]hile we like management's bold actions, they will likely only move [Pier 1] to a level where its competitors have been operating successfully for some time now," Binder said. "[Pier 1] will need to do even more in areas like product sourcing, supply chain and marketing — to both a millennial audience and its core 51-55 year old customer — to distinguish itself in the market."
