Of Interest : MANAGEMENT OVERVIEW
Pier 1 Imports, Inc. (together with its consolidated subsidiaries, the “Company”) directly imports merchandise from many countries, and sells a wide variety of decorative accessories, furniture, candles, housewares, gifts and seasonal products in retail stores throughout the U.S. and Canada and online at pier1.com. Fiscal 2019 consists of a 52-week year ending on March 2, 2019. Fiscal 2018 consisted of a 53-week year which ended on March 3, 2018. The results of operations for the 13 and 39 weeks ended December 1, 2018 and November 25, 2017, are not indicative of results to be expected for the fiscal year because of, among other things, seasonality factors in the retail business. Historically, the strongest sales of the Company’s products have occurred during the holiday season beginning in November and continuing through December. The Company conducts business as one operating segment. As of December 1, 2018, the Company operated 987 stores in the U.S. and Canada.
In April of 2018, the Company announced a multi-year “New Day” strategic plan designed to improve the Company’s brand proposition, drive sales growth and capture operating efficiencies. Under the New Day strategic plan, the Company focused on:
Improving brand proposition by segmenting the marketplace and focusing on targeted consumer groups, refining merchandise assortments, delivering value in order to better fit the customer’s style and create ease of shopping;
Driving sales growth through new marketing strategies focusing on content, digital communications and customer experience, improving the shopping experience and leveraging and strengthening the Company’s omni-channel platform; and
Capturing operating efficiencies through initiatives that include pricing and promotion, inventory reduction, sourcing, supply chain improvements and real estate optimization.
As a result of the New Day strategic plan not delivering the desired results as fast as expected, the Company will narrow its strategic focus and hone execution in an effort to reinvigorate top-line sales, while re-engineering the Company’s cost structure for sustained profitability.
The Company announced the following actions subsequent to quarter end:
Alasdair B. James, the Company’s former President and Chief Executive Officer, stepped down from the Company, and the Board of Directors of the Company appointed Cheryl A. Bachelder, a director of the Company, to the position of Interim Chief Executive Officer effective immediately. Ms. Bachelder will continue to serve as a member of the Board of Directors;
The Company amended its secured revolving credit facility to include a new $50 million first-in, last-out (“FILO”) tranche provided by Bank of America and Pathlight Capital. The new FILO tranche, which was completed and funded on December 14, 2018, expands the secured revolving credit facility from $350 million to $400 million and modifies the borrowing base;
The Company announced that the Board of Directors initiated a process to evaluate a full range of strategic alternatives to enhance shareholder value and has retained Credit Suisse to assist in this effort; and
As part of the Company’s efforts to improve profitability and cash flow, the Company has reduced planned capital expenditures for fiscal 2019 from $60 million to $40 million and is embarking on a rigorous cost reduction program that is expected to generate annualized expense savings beginning in fiscal 2020.
During the third quarter of fiscal 2019, net sales decreased 11.9% from the prior year third quarter, and company comparable sales decreased 10.5%. These results primarily reflected execution challenges related to the Company’s marketing program, which did not drive store traffic, and delays in getting certain products into stores. The Company estimates that the shift of certain holiday selling days, which were not included in last year’s fiscal third quarter, benefited third quarter fiscal 2019 company comparable sales by approximately 600 basis points. The impact of this timing shift is expected to reverse in the fourth quarter of fiscal 2019.
Gross profit for the third quarter of fiscal 2019 was $130.5 million, or 31.6% of sales, compared to $176.7 million, or 37.7% of sales, in the same period last year, a decrease of 610 basis points. This decrease reflects lower merchandise margin, as well as 150 basis points of deleverage on store occupancy due to lower sales. The year-over-year decline in merchandise margin is primarily attributable to pricing strategies implemented during the first half of fiscal 2019 and increased promotional activity, as well as higher supply chain costs primarily related to increased freight expense.
Operating loss for the third quarter of fiscal 2019 was $28.9 million, or (7.0%) of sales, compared to operating income of $13.4 million, or 2.9% of sales, for the same period in the prior year. For the third quarter of fiscal 2019, the Company reported a net loss of $50.4 million, or ($0.62) per share, including the negative impact of $20.8 million, or ($0.26) per share, related to a non-cash charge to
15
increase the valuation allowance a gainst certain deferred tax assets, compared to net income of $7.4 million, or $0.09 per share, for the third quarter of fiscal 2018. EBITDA (earnings before interest, taxes, depreciation and amortization) for the third quarter of fiscal 2019 was ($16.9) m illion, compared to $ 26.7 million in the third quarter of fiscal 2018. See “ Reconciliation of Non-GAAP Financial Measures ” below.
During the third quarter of fiscal 2019, the Company recorded a non-cash charge of $20.8 million to increase the valuation allowance against its deferred tax assets. Of this non-cash charge, $19.0 million is attributable to deferred tax assets recognized during the first half of fiscal 2019. This non-cash charge does not limit the Company’s ability to utilize the underlying deferred tax assets against future profits.
During the first nine months of fiscal 2019, the Company utilized $31.5 million for capital expenditures, which was deployed toward technology and infrastructure initiatives, distribution and fulfillment centers, and existing stores. The Company also made investments in selling, general and administrative (“SG&A”) expenditures in the areas of marketing, corporate services and facilities planning and store operations.
On April 18, 2018, the Company announced that the Board of Directors had determined to discontinue the Company’s common stock dividend. At the same time, the Board of Directors also determined to discontinue share repurchases under the $200 million board-approved share repurchase program announced on April 10, 2014 (“April 2014 program”).
AI
Market Data 
Markets 
