Stock of the Day
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Pier 1 Imports (PIR)
Pier 1 Cuts Losses, Investors React Strongly
Shares of home furnishing company Pier 1 Imports shot up more than 50% during morning and afternoon trading on Thursday, buoyed on an announcement that the company lost much less than it did last year. The company has yet to find a truly profitable quarter, but things seem to be getting better, especially considering the economic factors affecting consumer spending and confidence. Will the Forth Worth-based company be able to get itself out of a nearly two year slump, or is this reduction in losses only a momentary bump?
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| Stock Analysis |
Pier 1 reported a third quarter loss of $10m, which sounds bad but is significantly more positive than the $72.7m loss during the same period last year. Sales declined a little over 7%, mostly due to a big reduction in consumer spending that has hit many other businesses in the furnishing industry. Company CEO Alex Smith indicated that one of his rallying cries would be the reduction of administrative expenses that killed margins, which might be working since costs fell by $60m. The news, albeit only semi-positive, prompted investors to boost the stock 50%.
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Buy Pier 1 Imports for just $4
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In March the company announced that it would lay off 175 field and home office positions. Investors, looking to hold on to something positive, reacted strongly to company CEO Alex Smith's purchase of some 40,000 shares of Pier 1 stock in earl October. Smith had come on board as CEO in January after the departure of Marvin Girouard. Leading up to Smith taking the helm, the company had experienced seven consecutive quarters with a loss. Investors figured that if the CEO was willing to plunk down money into a company that had recently hit a ten-year low, then his cost-cutting and efficiency-inducing strategy must be working out. The euphoria was only temporary, as analysts at D.A. Davidson reduced their price target on Pier 1 and kept the stock at "underperform".
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Shares of Pier 1 have taken quite a dive over the last five years. In November 2003 they reached a peak of $25.61, and have steeply declined to less than $5/share. Since the company is incredibly dependent, as are many home furnishing companies, on the health of the housing market, months of speculation of a housing bubble have sapped sales significantly. This year things did not make much of a turnaround, especially considering the summer credit crunch that ate up a lot of available liquidity and cut down on consumer confidence.
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Profile |
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