Pier 1's Deferred Gains, Revenue: Where Is The Missing $17M?

| About: Pier 1 (PIR)

Pier 1 (NYSE:PIR) reported its Q3 2011 results this week [see transcript]. While the results were generally stellar, PIR recognized $3.2M “Interest and Investment Income and Other” versus only $1.0M last year. For the year-to-date period, PIR has recognized $8.4M “Interest and Investment Income and Other” versus only $3.1M last year.

Here’s where it gets interesting. The company’s Cash Flow Statement shows “Amortization of Credit Card Deferred Revenue” of $15.6M thus far in FY 2011. In addition, the company’s Cash Flow Statement shows “Amortization of Deferred Gains” of $9.8M thus far in FY 2011.

The two amounts were broken-out in this quarter’s Cash Flow Statement for the first time (historically, it appears that these two amounts were included in the more generic “Amortization of Deferred Gains”).

Per the 10-K filing, it appears that the two primary deferred gain items relate to the company’s new credit card agreement with Chase on December 30, 2010 (PIR was paid to tear up a previous agreement) and the company’s HQ sale in calendar 2008.

The HQ sale gain of $23.3 million is being amortized over 7 years (or, we estimate $3.3M per year / $830K per quarter). This amount is being amortized into Non-Operating Income.

The credit card sale gain of $28.3 million is being amortized over a short 18-month period beginning December 2010 (or, we estimate $4.7M per quarter).

Below is the company’s 10-K note disclosure re: the credit card gain:

The net deferred gain associated with the original program agreement will continue to be recognized in nonoperating income over the term of the new program agreement. The Company recognized $3,535,000, $2,052,000 and $2,164,000 related to this deferred gain in fiscal 2011, 2010 and 2009, respectively. The $28,326,000 in consideration received from Chase was also deferred and is being recognized over the new term of the agreement as a component of revenue consistent with the treatment of amounts received under the original program agreement.

While the company felt compelled to break-out the credit card deferred gain this quarter on its Cash Flow Statement, PIR management again made no mention of the deferred gains and/or non-operating income on its quarterly conference call. And, none of the participating sell-side analysts inquired as to the deferred gains during the conference call’s Q&A session (we were precluded from asking this question on the call).

So, the question is… where is the $25.4M (YTD) being amortized on the Income Statement? Analysts can find $8.4M in “Interest and Investment Income and Other.” But, where’s the remaining $17.0M? Is it a part of Revenue? Is it helping to offset SG&A expenses?

Only the company knows and they’re clearly not volunteering the information.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.