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Thursday, December 16, 2010

Pier 1 -- Great Earnings

My stock of the month for December, Pier 1 Imports (PIR), reported stellar quarterly earnings this morning. EPS came in at 18 cents (as against the consensus of 14 cents) and revenues were $353.8 million just above the consensus. An outperformance of four cents over the analysts views means more than one might think. Pier 1 reported its comps for the quarter over a week ago, so the Wall Street crowd had time to adjust their earnings expectations before today's reports. these numbers mean that not only were sales up (comps were up over 10%), but also the management has achieved this while getting higher margins with lower costs than expected. Given today's bad climate for business tied to home furnishings, this is no mean feat. Also on the good news front, the company said that sales momentum continued into the all important Christmas season.

The next big impetus for the stock after today's reports will likely be the upgrades from Wall Street or the increases in earnings estimates from the same crowd. PIR closed yesterday at $10.38, and it has been higher in the last week. After things settle down following today's numbers, there remains, in my view, still another potential 50% rise from where we are now. My one year target for the stock remains $15.00.

For those interested in reading my original and more complete discussion of PIR, it can be reached by clicking on the title to this post.

UPDATE: In the conference call this morning, management said that sales for December are going very well and further disclosed that the switch to a spring merchandise line will take place on January 5th. this early change over means that there is less holdiay merchandise being sold on clearance at low margins and a longer duration for non-discounted merchandise to be on the floor. This means higher margins than last year and is another good sign of things to come.

Disclosure: I remain long PIR and have about two thirds of these holdings hedged with covered calls.

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