Pier 1 FY 2Q17 Earnings Call Notes

Pier 1 Imports’ (PIR) CEO Alexander Smith on Q2 2017 Results

Improved sales trend continued into September

“We told you earlier this year that we expected a tale of two halves. The improved sales trend that started in August and continued into September is encouraging because in the second quarter, our topline performance was below plan with the most significant pressure seen during the month of July. We’re not really sure what happened in July. The internal factors were no different from June or August, but there were some significant events affecting the news cycle. Anyway, we saw sales pick-up in August, comps were minus 1%, and in September, comps are trending positive low single-digits with merchandise margin also ahead of last year.”

Closing stores is not a panacea

“Put another way, 95% of our sales are influenced by a store. That’s a big number, which brings me to our initiatives around real estate. There has been much discussion among investors and retailers about what the right-sized portfolio looks like in today’s omni-channel world. As you’ve just heard, our stores play a central role in almost every aspect of a Pier 1 Imports sale. We believe our current store optimization program, when completed will provide us with an appropriate number of locations for the foreseeable future. Closing stores is not a panacea. We lose store sales, we lose online sales, and we deleverage our costs more rapidly. The importance of stores must not be underestimated. And we all know that store traffic has become an industry-wide challenge and it’s certainly impacted our sales. Eventually, however, we believe equilibrium will be reached between store and site traffic.”

When things are going against you it’s everything, but the opposite when things start to go your way

“Well, all of the above. I think when things go against you it’s very rarely one thing. It’s always an accumulation of a lot of things. It’s just the way it works and what we’re seeing now is the impact we think of a lot of things going right which sort of all add up to better sales performance. Certainly, we’re seeing good traffic increases to the site. We are seeing less bad store traffic if that’s the right phrase.”

Seeing some better traffic

“when we start to get a healthy traffic, we start to get a sort of healthier mix between furniture and non-furniture departments. So I think we’ve seen some of that happening. In terms of ticket, we have seen an uptick in the ticket. That’s partly a consequence of where we are with clearance and partly a consequence of she is liking the product.”

It’s possible to overdo internet marketing

“Okay, Dan. Well, don’t forget that if you think of marketing in those three buckets, print, digital, and TV, everything we do in digital is measurable to the minute degree. So, we know exactly what return we’re getting for spend on everything to do with digital, and we can move dollars around between email and search and display depending on the — how efficacious they are all seeing at the time. So, we just have to make sure with digital that we don’t try and make it too efficient because we have to make sure that we get a balance between reach and efficiency.”

There is a ceiling to the amount of home furnishings a person will buy online

“I think what we do know is from all the research that there is, we’re getting — moving towards a sort of ceiling where the percentage of home furnishings that are bought online starts to — as a percentage of the total starts to slow down very considerably because there’s many, many customers, not just our competitors but our competitors’ customers who like to visit stores for all the reasons that we talked about.”

We are pleased to see traffic has ameliorated in the last nine weeks

“We are certainly not ready in any shape, way, or form to declare victory, but we are pleased to see that the slowdowns in store traffic, the decreases in store traffic have ameliorated over the last nine weeks”

This is who we are:

“Well, I think that’s an intriguing question, and I think I would start by saying I think our merchandise is still exclusive and it’s still highly differentiated on an item-by-item basis compared to any of our competition. And I think the other big difference that we — the other thing that we have which others don’t have is our ability to put together highly edited and thought through collections which make sense to customers. I mean those are our points of difference. I mean we are not aiming to have the biggest assortment in the universe. That’s not our go-to-market proposition, and we are happy for others to do it. We are not driven by being the lowest price in town and that’s not part of who we are as well.”

Jeffrey Boyer

-4.3% comp

“Net sales decreased 6.7% to $406 million while company comp sales decreased 4.3%, primarily reflecting soft store traffic. As Alex mentioned, July was the most challenging month of the quarter. We are encouraged that sequentially sales trends improved in August and have demonstrated further improvement in September.”