Pier 1 Imports FY 1Q16 Earnings Call Notes

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This year is all about leveraging our investments

“When we spoke to you last quarter, we told you that fiscal 2016 would be the start of a multi-year period, during which we will exploit the strength of our brand and our new omni-channel business model, and leverage the investments we’ve made in people, systems and physical infrastructure. It’s all about improving profitability by restoring merchandise margins and leveraging costs while maintaining steady top line growth.”

Sales increased a little less than we thought

” Total sales increased 3.1%, a little less than we thought whilst comp store sales rose 2% or 2.8% on a constant currency basis. We experienced healthy sales growth for much of the quarter, but had some challenging weeks in April.’

DCs not at optimal efficiency

“Pressuring our merchandise margins, as discussed on our year-end’s call, are the temporary costs at our distribution centers and the fact that our DCs are not performing at operational – optimal efficiency. The DCs are going through their own omni-channel transformation and are behind the stores in this process”

Shrinking the store base

“The careful reduction of our real estate footprints will allow us to drive growth to our omni-channel model, reduce store occupancy and payroll costs and improve efficiency. Additionally, other stores we are closing have contributions below the company average, overall profitability of the fleet will increase. We anticipate there will be additional opportunities beyond our initial 100-store assessment as we move through the process. ”

There has been a decline of the casual shopper

“the challenge for many of us in brick-and-mortar retailing today, is the decline of the casual shopper. So more and more is the vast understanding individual customers and putting product in front of her that you know will resonate.”

Expecting eps of 0.83-0.87

“EBITDA margin is expected to be comparable to fiscal 2015. Depreciation will be in the range of $50 million to $55 million. Operating margin is expected to come in comparable to fiscal 2015. We continue to expect that EPS will be in the range of $0.83 to $0.87 and our capital expenditures are expected to be approximately $60 million.’

Too many skus and too much inventory have impacted DCs

“three things have happened in the DCs. Firstly, we have significantly increased the SKU counts in the business both in terms of the online-only SKUs and the XR SKUs. So, the DCs have to pick many more SKUs than they used to in the old brick-and-mortar days. So, that’s added a significant level of complexity for the DCs.

Secondly, as you know we’ve – our inventories are much too high and so that the impacts of that inventory is felt most intensely by the DCs because our store inventories are extraordinarily well controlled. So, the DCs have had a double whammy of a much more complex business and very, very high-levels of inventory to manage. And the combination of those two things has caused the inefficiencies”

No more impulse purchases in store

“It’s what we described in our prepared remarks as the casual customer, because what we’re seeing is what everybody else is seeing is more and more customers are doing more and more of that free shopping online and so when they come to the store a much higher percentage of them and they all brick-and-mortar days have a sense of purpose. They really have a pretty clear reason why they are there and so yes we’re missing those people who are just coming in for a browse and making an impulse purchase whilst they’re there. That’s the new world that we live in.”

Cost need to come in line with the business

“I don’t think there is any part of the business that we’re really not looking at. I mean, we’re very conscious that the cost needs to come in line with the business, the savings across all our cost centers we’re leaving no stone unturned as the saying goes.”