Pier 1 Imports Update
| Pier 1 Imports Update
|
| (FOOL CONFERENCE CALL
SYNOPSIS)* By Debora Tidwell (MF Debit) Pier 1 Imports, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PIR)") else Response.Write("(NYSE: PIR)") end if %> Suite 600 301 Commerce Street Fort Worth, TX 76102-4106 (817) 878-8000
UNION CITY, Ca., August 19, 1996/FOOLWIRE/ --- Pier 1 Imports held a conference call for analysts to provide an update on the company.
The company hired a new CFO who started August 12th.
CHANGES TO REDUCE LONG-TERM DEBT ON THE BALANCE SHEET
On July 10th they called for conversion the $66.8 million of convertible debt that was on their balance sheet and converted that into 5.484 million shares of Pier 1 stock. At the stock price as of Friday morning August 16th, that added $95 million to the equity of the company, at the same time reducing $66.8 million worth of debt on their balance sheet.
They also announced their intention to arrange to securitize their credit card portfolio and use the proceeds of approximately $70 million to eliminate a large amount of their long-term debt by redeeming their $17.5 million outstanding 11.5% subordinated debentures due 2003, retiring their $25 million of 11% senior notes due 2001 and their 8.5% exchangeable debentures due 2000, and reducing the $40 million outstanding under their bank revolving credit facility by $24 million.
When this transaction is completed, and they expect that to happen sometime in September which would be the first week of their third quarter, they will have essentially eliminated approximately $140 million worth of long-term debt on their balance sheet and be left at that time with $25 million worth of industrial revenue bonds that mature in the year 2023 that they're paying interest of about 5% on. So that will be a permanent part of their capital structure and $16 million worth of term bank debt. They are doing this to reduce their interest cost going forward and the think it is a sound thing to do.
Earlier in the year they talked about their long-range plans through the year 2000. One of them was to materially reconfigure their balance sheet and they think this pretty much solves the long-term debt situation, enabling them to move forward.
PROPRIETARY CREDIT CARD CREDIT QUALITY
An analyst asked the company: "Given the fact that Pier 1's proprietary credit card is becoming an increasingly significant portion of your topline revenues, could you comment on the trends that you're seeing currently with respect to bad debt provision? And, do you believe that the current quarter may represent a trough quarter for that provision?"
The company responded that they have not seen a material change in the credit quality of their credit card. Pier 1 Imports has a customer that comes from a household income of $50,000+ per year. There has been evidence in the increase in bankruptcies which they understand are up significantly this year, something like 27% over a year ago, that many of those bankruptcies have come more from the lower end of the income spectrum. So, from that standpoint, they feel they have a good quality credit card customer and have been less adversely affected by that.
Credit cards have generated 27% of their total business through the end of July, up from approximately 23% a year ago. And their average ticket through the end of July was $135, up from $130 a year ago. They will be judicious in monitoring that.
One thing that happens in the securitization of the credit cards is that you, in essence, sell your credit cards to someone else who takes the credit liability along with the credit card receivables. So, that becomes someone else's issue down the line, but they continue to see, as they have upgraded their merchandise, price points, and offerings, they continue to attract a higher quality customer and don't see that as a major problem for them.
CHANGES TO IMPROVE SALES AND STORE TRAFFIC
Another thing they talked about was developing a more aggressive sales culture in the company. They have been producing strong sales for the last 11 months, so they continue well on that path.
They are set to open 55-56 new stores this year. They will have opened 22 new stores through the first half of their fiscal year which ends on the 24th of August and their plans are to open an additional 25 stores before Christmas.
They are on target to remodel 35 stores this year, a major remodeling program which generally consists of putting in a new tile floor, redoing the ceiling, redoing the lighting, and generally re-imaging the store. They will do 35 this year and then 50 per year through the end of the decade. Since the program started they have re-imaged over 55 stores and the impact of these stores have been very well received by customers. They have just been rolling the model out and, with same store sales year-to-date up over 12%, they have generally been getting a good sales lift everywhere, but those remodeled stores cost them about $189,000 apiece and, in the pro formas to justify the financial investment and select the stores, they have a 20% hurdle rate in order to open those stores. They will be more definite about the results after they've had more time to analyze them, but there is no question that based on exit interviews with customers, etc. they like the new re-merchandized stores better than the older stores.
Note: the re-merchandized stores will be included in the comp base. The remodeled stores will be included in the comp base, but while a store is being remodeled, it is not counted. They did this because they felt the remodels distorted the comps.
They expect their Bridal Registry to be rolled out and operative throughout the country by the 30th of October. It is a Bridal Registry and Gift Registry so that will be done in time for Christmas. They continue the orderly transition out of apparel. As of the present time, they have apparel out of 1/3 of their North American stores and they have a process of consolidating that into fewer and fewer stores as time goes on. They expect apparel will be removed from the chain by the end of the first quarter of next year which is at the end of May and they think that will be a very positive development for the company because clearly their square footage sales of hardlines have been greater than apparel. And, their merchandise margins on hardlines this year are significantly above what the merchandise margins are on apparel, partly because they are in the process of closing out that cateogry.
NEW STORE OPENINGS AND EXPANSION/GROWTH PLANS
At the end of this year, they will have about 728 stores worldwide. Next year they plan on opening 50-55 new stores, probably closing 20, and doing an additional 50 remodels. Their plans are to accelerate the level of re-imaging or re-merchandising existing stores and to do 165 stores next year so that, at the end of next year (FY98, which ends in February 1998), they would have 58% of all their stores remerchandized. At the end of FY99, they would have 80% remerchandized. At the end of FY 2000, the fiscal year ending in February 2000, they would have all of their stores remerchandized and would have 780 domestic stores in the US and Canada.
As they have publicly stated, however, they have the potential to open up to 950 stores in the US that are the traditional Pier 1 model. At the end of the decade, their plans would be to have 780, so they have some flex there in terms of additional stores. They have been testing a concept of 4000 square foot stores, which are not in this aggregate number. They have opened one in Beaumont, TX that they are pleased with and are opening their second before the end of the fiscal year in Key West, FL.
Through the end of the decade, they have internal objectives to grow same-store sales 5-6% and add enough square footage that accounts for approximately 5% growth in new square footage.
On top of that, they want to grow internationally at the 1-2% range. They have 10 stores in Mexico with Sears, 5 stores in Puerto Rico inside Sears stores with a 6th to be added before Christmas. They are currently operating 15 stores in the UK under the name The Pier. They have started their program in Japan and opened their first store on April 19th and another store two weeks ago. The goal in Japan is to have 5 stores open before the end of October, 20 stores next year, and 100 stores by the end of the decade.
Their internal goal is to grow the topline 12-15% per year through better results in existing stores, opening new stores in North America, and expanding internationally. Then their goal is to grow the bottom line at a rate above that, in the 15-18% range.
SALES PERFORMANCE SO FAR
The company has had very strong sales in June and July (16%+ in June and almost 13% in July), and they expect August sales to be in the mid-single-digit range (around 5%). The reason for that is, because they had 53 weeks in their fiscal calendar last year, every week this year is pushed one week into the future. So, they finished the month of July on August 3rd. That week they dropped their August circular. And, while their same store sales were up 2.2%, consistent with what other retailers reported as poor sales because of the Olympics, their fourth week sales bounce back to over 11%, so they finished very strongly. So, when they get into the first week of August last year, it was the week they dropped the circular. So, they got the benefit of the strong sales the fourth week of July and they are up against the first week of the circular in the first week of August. As a result, that week was essentially flat. They will see sales pick up as they move through the month, but they will not have the kind of results in August that they had in June and July.
They still think sales will be up in Q2 in the 11-12% range and then they will be looking ahead through the rest of the fiscal year. They feel that Q3 will produce positive results for the company.
CHRISTMAS SEASON UNCERTAIN
They, like a lot of retailers, are watching Christmas and really scratching their head as to what Christmas is really going to be like. Between Thanksgiving and Christmas, there are five fewer days. Last year there were 31 shopping days, this year there are 26. If you look at the industry's Christmas sales the last four years starting in 1992, sales were up 7.4% in 1992, 4.2% in 1993, 4.1% in 1994, and 1.6% in 1995. For the industry there was a declining pattern of sales at Christmas. Pier 1 sales in those four year Christmas periods were up 9.3% in 1992, 6.8% in 1993, 10.2% in 1994, and 16.1% in 1995. So, their challenge is how they put "300 pounds of wheat in a 200 pound sack." But, the company thinks it is up to the challenge and will continue to move forward on a positive basis.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.
(c) Copyright 1996, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.
Transmitted: 8/20/96 | |
Copyright 1996, The Motley Fool |