Pier 1 Imports 1Q14 Earnings Call Notes

posted in: Notes | 0

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings.

6.3% comp

“achieved a company comparable sales gain of 6.3% against the backdrop of a challenging retail climate. We are delighted with the dramatic increase in e-Commerce and how the advantages of 1 Pier 1 strategy have been embraced by our customers both new and returning.”

Huge growth in e-commerce

“First quarter online sales accounted for 9% of our total business, well ahead of where we were trending in the back half of last year. e-Commerce sales increased 260% from the first quarter last year and almost 50% sequentially from the fourth quarter.”

People adopting e-commerce much faster than plan, hitting targets 1 year early

“When we planned fiscal 2015, we did not expect our customers to engage our brands through Pier1.com with quite this much enthusiasm. We are, of course, responding to this enthusiasm and modifying our plans accordingly. Based on the momentum we are experiencing, we are revising our e-Commerce growth expectations for fiscal 2015 and ’16. We now anticipate that we’ll achieve e-Commerce sales of over $200 million this year, a number that will see us hit our original target 1 year early. We now see for fiscal 2016 e-Commerce sales exceeding $400 million.”

E-commerce good but store performance not so good

“Although our online sales for the quarter were outstanding, overall, the quarter did not unfold as we planned. Store sales and profitability were disappointing, impacted by soft traffic and a higher level of promotional activity than we anticipated.”

Not sure if this is a change in customer behavior, conversion and ticket are both strong though

“Whether or not this softness in store traffic is represented — representative of a permanent sea change in customer behavior or a temporary phenomenon, is hard to tell at this stage. However, for the time being, we are planning our business going forward, assuming store sales are more apt to be driven by increases in conversion and ticket, both of which are strong.”

Gross profit dollars impacted by promotional environment

“Whether or not this softness in store traffic is represented — representative of a permanent sea change in customer behavior or a temporary phenomenon, is hard to tell at this stage. However, for the time being, we are planning our business going forward, assuming store sales are more apt to be driven by increases in conversion and ticket, both of which are strong.”

e-commerce profitability will eventually move ahead of stores

“Sales from our direct-to-customer business are already as profitable as our stores. This is extremely promising, as we have yet to reap the advantages of scale. With the acceleration of the business in the first quarter, we can see how, over time, profitability of e-Commerce will continue to improve and eventually move ahead of the stores.’

25% of ecommerce generated in store

“25% of our first quarter e-Commerce transactions were generated in our stores.”

1/3 of customers ordering online choose to pickup in store

“approximately 1/3 of those who order from home choose to pick up in-store, presenting us with yet another opportunity to drive incremental sales. 1 Pier 1 is playing out even better than we had planned and customers are embracing our omni-channel presence with tremendous enthusiasm.”

Store comps becoming less meaningful

“comparable-store sales increased in the 4-ish range in the first quarter. It is clear to us at this stage, the comparable-store sales are quickly becoming less and less meaningful in terms of the total picture, as we continued to progress under 1 Pier 1, company comparable sales is the metric we’ll be using to measure the strength of the business.”

Gross margin fell by 240 bps, 150bps because of promotion

“As a percentage of sales, gross profit declined 240 basis points to 40%. 150 basis points of the decline is attributable to a promotional cadence that was higher than planned, with the balance resulting from the shift in our channel mix.”

markdowns not driven by clearance, driven by promotion

“it’s not so much the markdown pressure. I mean, we continue to run a very clean inventory as I know you know. So it’s really the promotional markdown, the temporary sale markdowns”

The customer wants to save, we tried, but couldn’t fight it

“The customer wants to save on the initial pricing. And as you know, with Pier 1, we tried for a long time to stay out of following the rest of the market, but that proved really, really hard to do, if you’re going to maintain your market share. So now we’re in there with the rest of the pack promoting away.”

Customers are just gravitating towards clearance items

“We put a fairly fixed amount of our inventory on promotion every month. And what we’re seeing now is that it’s over-indexing much more than we’re accustomed to in terms of a percent to our sales.”

Analyst comment: the weather remains unfavorable

“weather seems to be a little worse this year than last year, a little bit cooler, a little bit rainier.”

Got much better towards labor day and has picked up a lot since

“it was a really slow start for all the reasons that you can imagine. But it really picked up momentum as we’ve got towards Memorial Day and we’ve really had a terrific time on outdoor from, I guess, really the week before Memorial Day and it’s still doing very nicely.”

Some of the effort required to grow an ecommerce platform

“so much of the e-Commerce is based on number of SKUs. And as we’ve talked to you that we’re building the SKU base very rapidly. And every SKU that we have creates a lot of work, in terms of photography and art direction and creating the product base and so on and so forth. There’s a lot of — kind of transactional work that needs to be done.”

Room to improve on how to “manipulate” the customer base

“we understand that some of our competitors are much further down the road than we are in terms of the sophistication with which they can manage and manipulate their customer database. So we’re really playing catch-up on that, but we’re playing catch-up pretty aggressively”

We’re evaluating how many stores we need, but stores are an important part of driving online

“you can be sure that as we look at the strength of our online business in parallel with that, we are thinking how many stores we need to go with it. But don’t forget, the stores are just a very powerful vehicle for online.’

Promotional activity driven by the fact that we’ve trained the consumer ot expect it

“I think the industry generally is somewhat a victim of its own activity and that we have trained the customer to expect a degree of off-pricing and because everybody does it, everybody does it and then she expects this and it just — it becomes a habit. I think that’s a piece of it.”

We tried to fight it but couldn’t

“we tried and succeeded relatively well to hang back from this for a long time, but you’ll recall, when we released our Q3 earnings last year, we talked about this a lot and the conclusion we came to, Brian, is that we just couldn’t be — we couldn’t afford to be giving away market share.”

We think we need to preserve market share

“I don’t want to sound too negative about this, but we are where we are in terms of the competitive environment. And our job is to, we think, preserve our market share.”