About a year and a half ago, I recommended the stock of Pier 1 Imports, Inc. (symbol PIR). When I last discussed the stock, it was selling for $11.82. Since then it has risen sharply and closed yesterday at $18.24. This morning, however, there is news which ought to send the stock up more in the near term. The company announced sales and expected earnings for the quarter that just ended on August 25, 2012. Sales were up 8.3% to 368 million dollars. Estimated earnings per share were 24 cent on a GAAP basis and 19 cents on a non-gap basis. Both numbers beat the estimates of the analysts.
The report was a good one no matter how one looks at it. There is hidden information, however, which makes the report look stellar. Let me explain. For the longest time, Pier 1 had no internet business at all. A visit to the website could help one locate a store, but that was it. Then, the company organized their site to permit a customer to order merchandise on line, but that customer still had to go to a store to pick the order up. In the middle of the just-completed quarter, Pier 1 finally went live with a site where one can order good directly from the company. It is a full service on line store. The current quarter's results include the results of that effort for one-third of the quarter. The website officially commenced operations last week, but it has actually been up and running for about a month. According to this morning's report, total sales by the company were up year over year by 8.3%, but comparable store sales were up 6.7%. The key additional fact is that the company has essentially the same number of stores this year as it had last year. That means that something like 1.6% out of and 8.3% sales increase is due to the new website. If the website could generate those sales in a month prior to the official launch, just imagine what it will do when it operates full time for the coming quarters with full advertising support from the company. It is not difficult to forecast the website to add ten percent or more to the company's sales.
One needs to keep in mind that Pier 1 already has a gross margin of about 60% on sales. For marginal sales from the website, this margin has to be higher. In short, most of the additional sales revenue will go (after tax, of course) straight to the bottom line.
What all this means is that outlook for the future profitablility of Pier 1 just got a great deal rosier. It is true that Pier 1 will be captive to the overall trends in the economy, but even there, the company has advantages. The nascent recovery in housing could be a boon to Pier 1 even if the overall economy continues its descent into recesssion. On the other hand, if the economy somehow manages to pull out of its decline, Pier 1 could catch that wave to profit in a major way.
Even after the more than 50% increase in the stock price since I last recommended Pier 1 stock, I still think it is a good buy. My twelve month target for the stock is twenty six dollars.
DISCLOSURE: I am long Pier 1 stock.
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