Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
PIR > SEC Filings for PIR > Form 10-K on 30-Apr-2013All Recent SEC Filings

Show all filings for PIER 1 IMPORTS INC/DE | Request a Trial to NEW EDGAR Online Pro

Form 10-K for PIER 1 IMPORTS INC/DE


30-Apr-2013

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.

MANAGEMENT OVERVIEW

Introduction

Pier 1 Imports, Inc is one of North America's largest specialty retailers of imported decorative home furnishings and gifts. The Company directly imports merchandise from many countries, and sells a wide variety of decorative accessories, furniture, candles, housewares, gifts and seasonal products in its stores and through the Company's website, Pier1.com. The Company conducts business as one operating segment and operates stores in the United States and Canada under the name Pier 1 Imports. As of March 2, 2013, the Company operated 1,062 stores in the United States and Canada. Fiscal 2013 consisted of a 53-week year and fiscal 2012 and 2011 were 52-week years.

In April 2012, the Company announced a new three-year growth plan designed to drive profitable top and bottom-line growth, expand market share, and increase shareholder value as the Company continues evolving into a multi-channel retailer. The plan includes building a best-in-class e-Commerce platform; strengthening the Company's infrastructure through investments in technology, processes and systems; improving the Company's store portfolio through refurbishments, remodels, new store openings and strategic relocations; investing $200 million in capital over a three-year period; and returning value to shareholders through share repurchases and quarterly cash dividends. In conjunction with the three-year growth plan, the Company established financial targets which include achieving sales per retail square foot of $225 and operating margins of at least 12% of sales by the end of fiscal 2015. The Company also expects an online sales contribution of at least 10% of total revenues by the end of fiscal 2016. During fiscal 2013, the Company delivered on a number of long-term strategic projects, which are the foundations and building blocks for long term success. One of the most significant achievements was the successful launch of its new e-Commerce enabled website, Pier1.com, at the end of July 2012. The website has a brand new, fully redesigned look, feel and functionality. Traffic to the website has increased significantly compared to last year with more than one million unique visits per week.

Fiscal 2013 total sales (on a 53-week basis) increased 11.2% and comparable store sales (on a 52-week basis) increased 7.5% compared to the prior year. The increases were primarily attributable to increases in store traffic and average ticket versus last year. Sales per retail square foot were $198 at the end of fiscal 2013, compared to $184 at the end of fiscal 2012. Management believes that the Company's sales will continue to improve as a result of its unique and special merchandise assortments and superior in-store experience.

Merchandise margins at the store level for the fiscal 2013 were 60.0% compared to 59.8% in the same period last year. Merchandise margins, including the direct-to-consumer business, were 59.8% of sales, which was flat compared to fiscal 2012. Store occupancy costs during fiscal 2013 were $276.5 million, or 16.2% of sales, compared to $265.9 million, or 17.3% of sales, during fiscal 2012. Gross profit for fiscal 2013 was 43.6% as a percentage of sales, compared to 42.5% in fiscal 2012, an improvement of 110 basis points.

Operating income for fiscal 2013 was 11.7% of sales, compared to 10.1% of sales in fiscal 2012. The year-over-year improvement was primarily due to increases in sales and merchandise margins.

The Company also continues working diligently towards completing the implementation of its new point-of-sale system. The Company commenced an all store rollout of the new point-of-sale system in March 2013 and expects to have it rolled out to all stores by summer of 2013. After the roll out is complete, the Company will begin to fully integrate its e-Commerce site with the new point-of-sale system, further strengthening the foundation on which to build its multi-channel capabilities. The Company's vision for the future, "1 Pier 1", is a multi-channel, multi-brand, fully integrated and seamless organization and shopping experience. The Company's retail store locations and e-Commerce channel will operate as mutually supportive, integrated and interdependent businesses.


Table of Contents

Capital expenditures for the year totaled $80.4 million. Of that amount, approximately $52 million was deployed toward the opening of 22 new Pier 1 Imports stores, the refurbishment of approximately 100 locations, major remodels at four locations, the rollout of new merchandise fixtures to all stores and the implementation of other leasehold improvements and equipment. The Company's three-year growth plan includes $100 million in investments to enhance the quality of its real estate through new store openings, relocations, remodels and refurbishments. To date, the Company has refurbished 253 stores to varying degrees, of which 200 are top volume stores, and all stores have received some new fixtures. The remaining $28 million of capital spend was utilized for technology and infrastructure initiatives, including e-Commerce and the new point-of-sale system. Capital expenditures in fiscal 2014 are expected to be approximately $75 million, with approximately half allocated to stores and other leasehold improvements and the balance being deployed toward technology and infrastructure.

The Company's share repurchase program announced in October 2011 was completed in December 2012, resulting in the repurchase of approximately 5.3% of the Company's common stock outstanding. A total of 5,822,142 shares of its common stock were repurchased at a weighted average cost of $17.18 per share for a total cost of $100.0 million. As a result of the Company's continued strong financial performance during fiscal 2013, the Company's Board of Directors announced a new $100 million share repurchase program on December 13, 2012. As of March 2, 2013, no shares had been repurchased under the Company's current share repurchase program and $100 million remained available for repurchase. Subsequent to year end, the Company utilized a total of $5.0 million to repurchase 226,700 shares of the Company's common stock at a weighted average price per share, including fees, of $22.24 and as of April 23, 2013, $95.0 million remained available for repurchase under the December 2012 program. In addition, on April 4, 2013, subsequent to year end, the Company's Board of Directors declared a $0.05 per share quarterly cash dividend on the Company's outstanding shares of common stock as of April 24, 2013, which is payable on May 8, 2013.

The following discussion and analysis of financial condition, results of operations, and liquidity and capital resources should be read in conjunction with the accompanying audited Consolidated Financial Statements and notes thereto which can be found in Item 8 of this report.

Overview of Business

The Company's key financial and operational indicators used by management to
evaluate the performance of the business include the following (trends for these
indicators are explained in the comparative discussions of this section):



Key Performance Indicators                       2013            2012             2011
Total sales growth                                 11.2%            9.8%             8.2%
Comparable stores sales growth (1)                  7.5%            9.5%            10.9%
Sales per average retail square foot (1)       $     198       $     184        $     168
Merchandise margins as a % of sales                59.8%           59.8%            58.6%
Gross profit as a % of sales                       43.6%           42.5%            39.8%
Selling, general and administrative
expenses as a % of sales                           30.1%           31.0%            30.9%
Operating income as a % of sales                   11.7%           10.1%             7.4%
Net income as a % of sales                          7.6%           11.0%             7.2%
Total retail square footage (in thousands)         8,358           8,271            8,232
Total retail square footage increase
(decline)                                           1.1%            0.5%           (0.7%)

(1) Includes orders placed online for store pick-up. All fiscal years were calculated on a 52-week basis.

Stores included in the comparable store sales calculation are those stores that have been open since the beginning of the preceding fiscal year. In addition, orders placed online for store pick-up were included in the


Table of Contents

calculation. Remodeled or relocated stores are included if they meet specific criteria. Those criteria include the following: the new store is within a specified distance serving the same market, no significant change in store size, and no significant overlap or gap between the closing and reopening. Such stores are included in the comparable store sales calculation in the first full month after the re-opening. If a relocated or remodeled store does not meet the above criteria, it is excluded from the calculation until it meets the Company's established definition of a comparable store.

FISCAL YEARS ENDED MARCH 2, 2013 AND FEBRUARY 25, 2012

Net Sales

Net sales consisted almost entirely of sales to retail customers, net of
discounts and returns, but also included delivery revenues and wholesale sales
and royalties. Sales by retail concept during fiscal years 2013 and 2012 were as
follows (in thousands):



                                    2013                  2012
                    Stores      $   1,676,293         $   1,518,200
                    Other (1)          28,592                15,411

                    Net sales   $   1,704,885         $   1,533,611

(1) Other sales consisted primarily of wholesale sales and royalties received from subsidiaries of Grupo Sanborns, S.A. de C.V., gift card breakage, and direct-to-consumer sales.

Net sales during fiscal 2013 were $1.705 billion for the 53-week period, an increase of 11.2%, from $1.534 billion for the prior fiscal year. The increase in sales for the fiscal year was comprised of the following components (in thousands):

                                                          Net Sales
             Net sales for fiscal 2012                  $   1,533,611
             Incremental sales growth (decline) from:
             New stores opened during fiscal 2013 (1)          31,093
             Stores opened during fiscal 2012                  13,511
             Comparable stores (2)                            112,077
             Other, including closed stores (3)                14,593

             Net sales for fiscal 2013                  $   1,704,885

(1) Includes direct-to-consumer sales.

(2) Includes orders placed online for store pick-up.

(3) Includes comparable store sales for the 53rd week of fiscal 2013.

The total sales growth for fiscal 2013 was primarily the result of an increase in store traffic and average ticket compared to the prior year. Comparable store sales increased 7.5% for the year. As of March 2, 2013, the Company operated 1,062 stores in the United States and Canada, compared to 1,052 stores at the end of fiscal 2012. The Company's net sales from Canadian stores were subject to fluctuation in currency conversion rates. These fluctuations contributed to a ten basis point decrease in the comparable store calculation in fiscal 2013 compared to fiscal 2012. Sales on the Pier 1 credit card comprised 25.7% of U.S. store sales compared to 21.2% last year.


Table of Contents

A summary reconciliation of the Company's stores open at the beginning of fiscal 2013, 2012 and 2011 to the number open at the end of each period is as follows (openings and closings include relocated stores):

                                    United States            Canada            Total
       Open at February 27, 2010               973                81            1,054
       Openings                                  3                 -                3
       Closings                                 (9 )              (2 )            (11 )

       Open at February 26, 2011               967                79            1,046
       Openings                                 13                 2               15
       Closings                                 (9 )               -               (9 )

       Open at February 25, 2012               971                81            1,052
       Openings                                 22                 -               22
       Closings                                (11 )              (1 )            (12 )

       Open at March 2, 2013 (1)               982                80            1,062

(1) The Company supplies merchandise and licenses the Pier 1 Imports name to Grupo Sanborns, S.A. de C.V. which sells Pier 1 Imports merchandise primarily in a "store within a store" format. At the end of fiscal 2013, there were 49 of these locations in Mexico and one in El Salvador. These locations are excluded from the table above.

Cost of Sales and Gross Profit

Cost of sales were 56.4% expressed as a percentage of sales in fiscal 2013, compared to 57.5% of sales in fiscal 2012. Gross profit, which is calculated by deducting store occupancy costs from merchandise margin dollars, was 43.6% expressed as a percentage of sales in fiscal 2013, compared to 42.5% a year ago. Merchandise margins at the store level for the fiscal 2013 were 60.0% compared to 59.8% in the same period last year. Merchandise margins, including the direct-to-consumer business, were 59.8% of sales this year. During fiscal 2013, the Company maintained strong input margins, which resulted from the Company's continued focus on maximizing margins through negotiating advantageous vendor costs and ensuring an efficient supply chain. In addition, the Company also continued to execute its disciplined and analytical buying strategies in an effort to maintain the right balance of regular, promotional, and clearance pricing.

Store occupancy costs during fiscal 2013 were $276.5 million or 16.2% of sales, compared to $265.9 million, or 17.3% of sales during fiscal 2012. For the fiscal year, all occupancy expenses decreased as a percentage of sales compared to last year, with the exception of property insurance which remained relatively constant. Overall, rent expense increased in dollars primarily due to the increase in new store openings, but decreased as a percentage of sales during fiscal 2013.

Operating Expenses and Depreciation

Selling, general and administrative expenses were $513.1 million, or 30.1% of sales in fiscal 2013, compared to $475.2 million, or 31.0% of sales in fiscal 2012. The 90 basis point improvement was due to the leveraging of store payroll and fixed expenses, and was slightly offset by increases in marketing expense.

Depreciation and amortization for fiscal 2013 was $31.0 million, representing an increase of $9.8 million from last year's depreciation and amortization expense of $21.2 million. This increase was primarily the result of capital expenditures in fiscal 2013, partially offset by certain assets becoming fully depreciated and store closures.

In fiscal 2013, the Company recorded operating income of $199.0 million, or 11.7% of sales, compared to $154.8 million, or 10.1% of sales, for fiscal 2012.


Table of Contents

Nonoperating Income and Expense

Nonoperating income for fiscal 2013 was $2.0 million, compared to $9.3 million in fiscal 2012. The decrease was primarily the result of the completion of deferred gain recognition related to transactions with the Company's former proprietary credit card provider. During the second quarter of fiscal 2013, the Company reversed a portion of its reserve for uncertain income tax positions for which the statute of limitations had expired. This adjustment resulted in the reversal of $2.8 million of accrued interest expense, which partially offset the decrease in deferred gain recognition compared to the prior year.

Income Taxes

The Company recorded an effective tax rate of 35.6% and an income tax provision of $71.6 million in fiscal 2013, which included the impact of the Company reversing a portion of its reserve for uncertain income tax positions during the second quarter. During fiscal 2012, the Company recorded a benefit of $4.8 million. The increase over prior year was due to the Company reporting increased income in fiscal 2013. In addition, the Company reversed its valuation allowance during the fourth quarter of fiscal 2012 and recorded a tax benefit during the period.

Net Income

Net income in fiscal 2013 was $129.4 million, or $1.20 per share. Net income for fiscal 2012 was $168.9 million, or $1.48 per share, which included the tax benefit resulting from the change in the Company's tax valuation allowance during the fourth quarter of fiscal 2012. Before non-recurring tax benefits of $61.5 million, primarily resulting from the change in the Company's tax valuation allowance, earnings per share were $0.94 for fiscal 2012.

FISCAL YEARS ENDED FEBRUARY 25, 2012 AND FEBRUARY 26, 2011

Net Sales

Net sales consisted primarily of sales to retail customers, net of discounts and
returns, but also included delivery revenues and wholesale sales and royalties.
Sales by retail concept during fiscal years 2012 and 2011 were as follows (in
thousands):



                                    2012                  2011
                    Stores      $   1,518,200         $   1,381,944
                    Other (1)          15,411                14,526


                    Net sales   $   1,533,611         $   1,396,470

(1) Other sales consisted primarily of wholesale sales and royalties received from subsidiaries of Grupo Sanborns, S.A. de C.V. and gift card breakage.


Table of Contents

Net sales during fiscal 2012 were $1.534 billion, an increase of $137.1 million or 9.8%, from $1.396 billion for the prior fiscal year. The increase in sales for the fiscal year was comprised of the following components (in thousands):

                                                         Net Sales
            Net sales for fiscal 2011                  $   1,396,470
            Incremental sales growth (decline) from:
            New stores                                         9,329
            Comparable stores                                131,008
            Closed stores and other                           (3,196 )


            Net sales for fiscal 2012                  $   1,533,611

The total sales growth for fiscal 2012 was primarily the result of an increase in traffic and average ticket compared to the prior year. As of February 25, 2012, the Company operated 1,052 stores in the United States and Canada, compared to 1,046 stores at the end of fiscal 2011. The Company's net sales from Canadian stores were subject to fluctuation in currency conversion rates. These fluctuations contributed to a 30 basis point increase in both the net sales and comparable store calculations in fiscal 2012 compared to fiscal 2011. Net sales during fiscal 2012 and the fourth quarter of fiscal 2011 included amortization of the deferred gain related to the renegotiation of the Company's propriety credit card agreement with Chase Bank USA, N.A. ("Chase") during the fourth quarter of fiscal 2011. The gain amortization in fiscal 2012 was consistent with the treatment of amounts received from Chase during the same period of fiscal 2011 for transaction level incentives. During both periods, the amounts were mostly offset by costs associated with the credit card program. As a result of its new agreement with a subsidiary of Alliance Data Systems Corporation ("ADS") during the third quarter of fiscal 2012, the Company revised the amortization period for any remaining deferred gains related to prior transactions with Chase as appropriate.

A summary reconciliation of the Company's stores open at the beginning of fiscal 2012, 2011 and 2010 to the number open at the end of each period is as follows (openings and closings include relocated stores):

                                     United States            Canada             Total
    Open at February 28, 2009                 1,011                  81             1,092
    Openings                                      -                   -                 -
    Closings                                    (38 )                 -               (38 )

    Open at February 27, 2010 (1)               973                  81             1,054
    Openings                                      3                   -                 3
    Closings                                     (9 )                (2 )             (11 )

    Open at February 26, 2011                   967                  79             1,046
    Openings                                     13                   2                15
    Closings                                     (9 )                 -                (9 )

    Open at February 25, 2012 (2)               971                  81             1,052

(1) During the third quarter of fiscal 2010, the Company ended its relationship with Sears Roebuck de Puerto Rico, Inc. and closed all seven "store within a store" locations in Puerto Rico. These locations are excluded from the table above.

(2) The Company supplies merchandise and licenses the Pier 1 Imports name to Grupo Sanborns, S.A. de C.V. which sells Pier 1 Imports merchandise primarily in a "store within a store" format. At the end of fiscal 2012, there were 47 of these locations in Mexico and one in El Salvador. These locations are excluded from the table above.


Table of Contents

Gross Profit

Gross profit, which is calculated by deducting store occupancy costs from merchandise margin dollars, was 42.5% expressed as a percentage of sales in fiscal 2012, compared to 39.8% a year ago. Merchandise margins were 59.8% as a percentage of sales, an increase of 120 basis points over 58.6% in fiscal 2011. This improvement was the result of strong input margins, the right balance of regular and promotional pricing, and well-managed inventory levels.

Store occupancy costs during fiscal 2012 were $265.9 million or 17.3% of sales, compared to $262.4 million, or 18.8% of sales during fiscal 2011. Rent, property taxes, utilities and repair and maintenance expenses were all lower as a percentage of sales.

Operating Expenses and Depreciation

Selling, general and administrative expenses were $475.2 million, or 31.0% of sales in fiscal 2012, compared to $431.9 million, or 30.9% of sales in fiscal 2011. The increase was primarily due to increases in payroll resulting from the planned hiring of incremental headcount in support of e-Commerce and other growth initiatives, additional associate hours at the stores to support the higher sales volume, and additional expense for performance related pay and other items.

Depreciation and amortization for fiscal 2012 was $21.2 million, representing an increase of approximately $1.5 million from fiscal 2011. This increase was primarily the result of capital expenditures in fiscal 2012, partially offset by certain assets becoming fully depreciated and store closures.

In fiscal 2012, the Company recorded operating income of $154.8 million, or 10.1% of sales, compared to $103.7 million, or 7.4% of sales, for fiscal 2011.

Nonoperating Income and Expense

Nonoperating income for fiscal 2012 was $9.3 million, compared to expense of $0.2 million in fiscal 2011. The increase in net interest income was primarily the result of an increase in deferred gain recognition related to the renegotiation of the Company's proprietary credit card agreement with Chase during the fourth quarter of fiscal 2011. As a result of its agreement with ADS during the third quarter of fiscal 2012, the Company also revised the amortization period for any remaining deferred gains related to prior transactions with Chase as appropriate. In addition, interest expense decreased primarily as a result of a lower debt balance in fiscal 2012.

Income Taxes

The Company recorded an income tax benefit of $4.8 million in fiscal 2012 compared to a provision of $3.4 million in fiscal 2011. During the fourth quarter of fiscal 2012, the Company was able to conclude that given its improved performance, the realization of its deferred tax assets was more likely than not and accordingly reversed its valuation allowance and recorded a tax benefit during the period. This benefit was partially offset by tax expense. During fiscal 2012, the Company recognized federal income tax expense compared to only minimal amounts of state and foreign tax during fiscal 2011 due to the full valuation allowance.


Table of Contents

Net Income

Net income in fiscal 2012 was $168.9 million, or $1.48 per share, which included the tax benefit resulting from the change in the Company's tax valuation allowance during the fourth quarter of fiscal 2012. Before non-recurring tax benefits of $61.5 million, primarily resulting from the change in the Company's tax valuation allowance, earnings per share were $0.94 for fiscal 2012. Net income for fiscal 2011 was $100.1 million, or $0.85 per share.

Net income for the fourth quarter of fiscal 2012 was $115.2 million, or $1.04 per share. Before non-recurring tax benefits of $61.5 million, primarily resulting from the change in the Company's tax valuation allowance, earnings per share were $0.48 for the fourth quarter of fiscal 2012. Net income for the fourth quarter of fiscal 2011 was $57.1 million, or $0.48 per share.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash and cash equivalents totaled $231.6 million at the end of fiscal 2013, a decrease of $56.3 million from the fiscal 2012 year-end balance of $287.9 million. The decrease was primarily the result of the utilization of cash to support the Company's three-year growth plan, including capital expenditures of $80.4 million, $100.0 million to repurchase shares of the Company's common stock, and cash dividends of $18.0 million. These expenditures were mostly offset by cash provided by operating activities of $124.0 million.

The Company's cash and cash equivalents totaled $287.9 million at the end of fiscal 2012, a decrease of $13.6 million from the fiscal 2011 year-end balance of $301.5 million. The decrease was primarily the result of the utilization of cash to support the Company's three-year growth plan, including capital expenditures of $62.3 million and $100.0 million to repurchase shares of the Company's common stock. These expenditures were mostly offset by cash provided by operating activities of $142.2 million.

Cash Flows from Operating Activities

Operating activities provided $124.0 million of cash in fiscal 2013, primarily as a result of $129.4 million of net income, and a $5.7 million increase in . . .

  Add PIR to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for PIR - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.