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Pier 1 Imports (NYSE:PIR)

Q4 2012 Earnings Call

April 05, 2012 11:00 am ET

Executives

Kelley Buchhorn -

Alexander W. Smith - Chief Executive Officer, President, Director and Member of Executive Committee

Charles H. Turner - Chief Financial Officer, Executive Vice President of Finance and Treasurer

Analysts

Budd Bugatch - Raymond James & Associates, Inc., Research Division

Brian W. Nagel - Oppenheimer & Co. Inc., Research Division

Alan M. Rifkin - Barclays Capital, Research Division

Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division

Simeon Gutman - Crédit Suisse AG, Research Division

Anthony C. Chukumba - BB&T Capital Markets, Research Division

Operator

Good morning, ladies and gentlemen. This is the Pier 1 Imports Fourth Quarter and Fiscal Year End Conference Call. At the request of Pier 1 Imports, today's conference call is being recorded. [Operator Instructions] I would now like to introduce Kelley Buchhorn, Director of Investor Relations for Pier 1 Imports.

Kelley Buchhorn

Thank you, Deborah, and good morning, everyone. Prior to market open today, we issued 3 press releases. One included the financial and operating results for the fourth quarter and fiscal year ended February 25, 2012, one included details of the company's new 3-year growth plan and one included details of the company's board-approved quarterly cash dividend. In just a few moments, we will hear comments from Alex and Cary about the financial results and growth initiative, followed by a question-and-answer period.

Before we begin, I need to remind you that certain comments made during this call may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and can be identified by the use of words such as may, will, expect, anticipate, believe and other similar words and phrases. Our actual results and future financial conditions may differ materially from those expressed in any such forward-looking statements as a result of many factors that may be outside of our control. Please refer to our SEC filings, including our Annual Report on Form 10-K, for a complete discussion of the major risks and uncertainties that may affect our business. The forward-looking statements made today are as of the date of this call, and we do not undertake any obligation to update our forward-looking statements.

If you do not have a copy of today's press releases, you may obtain them, along with copies of prior press releases and all SEC filings, by linking through to the Investor Relations page of our website, pier1.com.

I would now like to turn the call over to Alex Smith, our President and Chief Executive Officer. Alex?

Alexander W. Smith

Thank you, Kelly. Good morning, everyone, and thanks for joining us today. Also on the call with us today is Cary Turner, our newly promoted Senior Executive Vice President and Chief Financial Officer. Congratulations, Cary.

Today, I'll talk about our key accomplishments in fiscal 2012, the strength of our financial results, as well as the key priorities we'll be focusing on in fiscal 2013 as we execute our new 3-year growth plan, which we announced this morning. Following my remarks, Cary will provide a detailed review of our fourth quarter and fiscal year financial results.

Fiscal 2012 was another outstanding year for Pier 1 Imports, marked by a number of milestones and successes. First and foremost, we delivered strong financial results. Both total sales and comp store sales increased nearly 10%, and operating income increased 49%, driving operating margins to 10.1%, which exceeded our 3-year goal of 10%. Additionally, the business generated $142 million in cash. We also returned value to our shareholders through a $100-million share repurchase, acquiring approximately 8% of our common stock.

One year ago, almost to the day, we laid out a 3-year growth plan designed to drive sales, improve profitability and increase shareholder returns. Our plan included investing $200 million over 3 years in initiatives designed to continue to build strength and sustainability into our business, driving both top and bottom line growth, and to capitalize on the numerous opportunities to profitably increase the reach of the Pier 1 Imports brand.

As most of you know, we set out the following financial goals: sales per retail square foot of $200, operating margins of at least 10% and online revenue contribution of at least 10% of sales by fiscal 2016.

One year into our plan, I'm extremely pleased with the progress we have made. And as you can see from today's press release, we have replaced that plan with a new plan that raises the bar even higher. More on the new plan in a moment, but first, I'd like to go through some of the highlights from fiscal 2012.

Broadly speaking, we upgraded the quality of our store portfolio, opened 15 new locations, made great strides in bringing our technology and systems up to the levels needed to support our longer-term growth. We also initiated developments of an e-Commerce platform that prepares us for our new business, Pier 1 To-You.

First, we invested in our store portfolio to start bringing our stores up to the high standards we need to achieve our financial goals. New merchandise fixtures and lighting upgrades have enhanced the shopping experience for our customers and helped drive increases in sales productivity. Indeed, in fiscal 2012, sales per square foot reached $184. That's up dramatically from $168 in fiscal 2011.

During the year, we refurbished 125 stores with the new fixture package and lighting upgrades. We also fully remodeled 3 locations, including our flagship store in Manhattan that many of you saw during our November store tour. We also added some new fixtures in all of our Pier 1 Imports stores. Today, 13% of our store portfolio now has the new look. And additionally, we reconfigured 12% of our stores into the open concept layout using existing store fixtures with no additional capital outlay.

Second, we opened 15 new stores. We have been very pleased with the performance of these new locations, which are trending at or above their pro forma sales projections.

Third, last June, we successfully launched the initial phase of our e-commerce initiative, Pier 1 To-Go. This site-to-store capability has been a big home run for Pier 1 Imports, contributing 1% to comps in 2012 and generating average ticket and unit per transaction above company averages. Our creative and technical teams have done an outstanding job of bringing the Pier 1 experience to the Pier 1 Imports site, where we're currently moving towards 1 million unique visitors per week.

Fourth, after a rigorous selection process, we have established vendor partnerships that lay the foundation of the next level -- leg of our growth in e-commerce, the launch of Pier 1 To-You in late July, and the initial rollout of our new POS system later this fall. We have a fantastic team that includes some of the best names in e-commerce and POS. Just to name a few, we have selected Demandware for our e-commerce platform, Jagged Peak for our e-commerce order management system, Sogeti as our e-commerce integration partner, Epicor for our POS software and NCR for our POS hardware.

Fifth, we've improved our planning and allocation systems to better manage our assortments by location, with the goal of making every store more profitable by improving sales and reducing markdowns.

Sixth, we strengthened our infrastructure by making investments in technology and systems, such as store labor optimization, price management and updated back-office systems. These are driving improvements in our processes, efficiency and analytics.

And last, we entered into a long-term agreement with Alliance Data Systems to manage our Pier 1 Imports Rewards card. As most of you know, ADS is a leader and an innovator in this arena. And just this past weekend, we successfully converted from our previous provider to ADS.

Clearly, we're beginning fiscal 2013 in a strong position. But in typical Pier 1 Imports fashion, we're not standing still or getting overconfident. The competitive situation is not getting easier, and we know that to continue to take market share, our assortments, our stores and our website must be clearly differentiated and special in the minds of our customers.

Our teams are now focused on the implementation of our new 3-year growth plan that we announced earlier today. This plan includes 5 key objectives: one, building a best-in-class e-commerce platform; two, further improving our store portfolio through refurbishments, remodels, new openings and strategic relocations; three, strengthening our infrastructure; four, investing $200 million in capital over the next 3 years; and five, returning value to the Pier 1 Imports shareholders.

We have also raised our financial expectations. Specifically, we have increased our goal for sales per square foot from $200 to $225 and increased our goal for operating margin from 10% to 12%. We expect to achieve these new benchmarks within 3 years by the end of fiscal 2015.

Additionally, we have also expanded our efforts to increase shareholder value. And as such, I am pleased to report that our board has approved a new quarterly cash dividend of $0.04 per share, reflecting the company's strong financial performance, balance sheet and cash flow. We also have the entire amount available under our current $100-million share repurchase program.

We are continuing to deploy capital towards building a best-in-class e-commerce platform. As I mentioned earlier, we have partnered with leaders in the field to help us to develop our technology, systems and functionality. Additionally, we are taking valuable earnings from Pier 1 To-Go, as we create an engaging site that is on brand, fun and easy to shop.

We are on track to launch Pier 1 To-You in late July and expect to pilot our new POS system beginning in September. This will allow us to -- this will enable us to drive improvement in in-store execution and customer service. We plan to commence an all-store rollout post-holiday. And by summer 2013, we will begin to fully integrate POS with e-commerce to create a truly seamless shopping experience for our customer.

Turning to the store portfolio. We are seeing positive results from both our new locations and our upgraded stores. The new look and feel is clearly resonating with our customers. Over the next 3 years, we will continue to invest in new store openings, major remodels, refurbishments and other leasehold improvements. In addition, we are developing new merchandise fixtures that will be rolled out in nearly all of our Pier 1 Imports stores.

During fiscal 2013, we are planning 6 to 8 major remodels and approximately 100 refurbishments. We also plan to reconfigure 100 stores in the open concept layout, utilizing existing store fixtures with no additional capital outlay. Additionally, stores will receive new merchandise fixture elements that we expect will help to increase impulse purchasing and ultimately result in improved sales productivity. By the end of fiscal 2013, we will have updated nearly 50% of our stores with either the new updated look or the open concept layout.

Looking at new store openings, we remain on track to open 80 to 100 stores and close 30 to 50 locations by the end of fiscal 2016. This year, our plans call for approximately 20 new store openings, including at least 6 relocations where we see substantial opportunity to improve our market share. Going forward, not only will we continue to upgrade our real estate portfolio through in-store enhancements, but just as important, we plan to capture the full potential of certain markets where opportunities exist through relocations to increase sales and gain market share.

Moving to infrastructure. We plan to continue strengthening our infrastructure through investments in technology and systems to further improve processes, efficiencies and analytics throughout the organization. In addition to the investments in e-commerce and POS, we also plan to continue improving systems, especially in merchandising and distribution.

We're very enthusiastic about the progress we've made and the opportunities we see for continued growth. We have a great business model, a high-performing team and a commitment to flawless execution. And in addition to our major initiatives, which include the launch of Pier 1 To-You, continued enhancements of the store portfolio and the new store openings, there are a number of other key drivers that we believe will allow us to achieve our growth targets in fiscal 2013 and beyond.

Our senior leadership team has now been substantially in place for 3 years. Our seasoned merchant team has increasing tenure and more of our buyers are cycling their own numbers. We're improving allocation to individual stores to maximize sell-through. We have a creative marketing program that includes increasing the frequency of television spots throughout the year to drive traffic to both our stores and website. And as a reminder, marketing expense will not be leveraged and will remain as approximately 5% of sales.

Our new partnership with ADS will provide an enhanced value proposition for the consumer and is expected to drive higher average ticket and transactions. New labor scheduling software is expected to help drive conversion, and new impulse items are expected to increase our units per transaction.

I'm pleased to note that the spring selling season is off to a good start. We're happy with the performance of our Easter decor and outdoor assortments and believe our stores are particularly well positioned leading up to the Easter weekend.

Given the consistency and momentum we've established in recent years, we felt it was now an appropriate time to start giving guidance. And as you'll hear from Cary in a moment, we are providing our expectations for full year comp store sales and earnings.

Lastly, I want to reiterate how much I personally appreciate all our Pier 1 Imports associates, who work hard and smart to make us a better place for our customers to shop.

We're embarking on a new chapter for Pier 1 Imports, and we fully expect that fiscal 2013 will be another year of milestones and successes. In addition to celebrating the launch of our e-commerce business, Pier 1 Imports is celebrating its 50th year in business and its 40th year on the New York Stock Exchange. We look forward to reporting to you on our progress throughout the year.

Thanks for listening to me this morning. Now I'll ask Cary to review our fourth quarter and fiscal year-end financials and outlook.

Charles H. Turner

Thank you, Alex, and good morning, everyone. We are pleased to finish fiscal 2012 with another strong quarter of financial performance. Comp store sales increased 10.3% for the fourth quarter, on top of last year's 8.9% gain, and total sales increased 11.8%, reflecting strength across all merchandise categories, as well as increases in store traffic and average ticket.

Pier 1 To-Go sales contributed approximately 1% to the comp store sales increase during the quarter. On a trailing 12-month basis at the end of the year, sales per retail square foot were $184, up from $168 per retail square foot at the end of last year. Fourth quarter gross profit improved 270 basis points to 45.5% compared to 42.8% last year. Merchandise margins increased 110 basis points to 59.5%, compared to 58.4% in the fourth quarter of last year. Merchandise margins continued to be positively impacted by strong input margins, the right balance of regular and promotional pricing, and well-managed inventory levels.

Store occupancy costs were flat year-over-year. And as a percent of sales, store occupancy declined 160 basis points to 14% versus 15.6% in the fourth quarter last year.

SG&A expenses for the quarter were $133 million or 27.8%, compared to $119 million or 27.9% for the same period in fiscal 2011.

Variable expenses for the quarter decreased 120 basis points, primarily resulting from the leveraging of store payroll and marketing expenses. As we have over the last 2 years, the company expects to continue leveraging variable expenses. I also want to remind everyone that we continue to expect to invest approximately 5% of sales and marketing for the full year, and therefore, we do not expect to leverage marketing expense on an annual basis.

Fixed expenses during the quarter increased by 120 basis points due to planned investments in headcount to support e-commerce and other growth initiatives, as well as additional expense related to incentive-based pay. Excluding the incremental costs in support of our e-commerce and other growth initiatives, fixed expenses during the quarter would have been leveraged by approximately 20 to 30 basis points.

Looking at the first half of fiscal 2013, we expect to incur slight increases in fixed expenses as we prepare for and invest in online sales and growth.

Fourth quarter operating income improved 34% to $78 million versus $58 million last year, while operating margin rose 270 basis points to 16.4% compared to 13.7% a year ago. The improvement in operating income resulted primarily from increases in sales and merchandise margins.

During the fourth quarter, we were able to conclude that given our improved performance, the realization of all deferred tax assets was more likely than not. And accordingly, we reversed our valuation allowance. The total change in the valuation allowance was approximately $60 million.

For the quarter, net income was $115.2 million or $1.04 per share. Before recording the nonrecurring tax benefits, primarily resulting from the change in the company's valuation allowance, net income for the quarter was $53.7 million or $0.48 per share. Last year, fourth quarter earnings per share were $0.48 per share, but included an income tax provision of only $2.5 million due to the company's federal net operating loss tax carryforward position.

For the year, earnings per share were $1.48 per share and were $0.94 per share before the nonrecurring tax benefits I just mentioned. This compares to earnings per share of $0.85 last year, which included an income tax provision of only $3.4 million.

The effective tax rate for fiscal 2012, before the nonrecurring tax benefits, was approximately 35%. The effective tax rate for fiscal 2013 should approximate 35% to 36% of pretax income.

For the year, operating income improved approximately 49% to $155 million or 10.1% of sales, compared to last year's operating income of $104 million or 7.4% of sales.

Total sales increased 9.8% and comp store sales rose 9.5%. The top line improvement was driven by increases in store traffic and average ticket. Gross profit improved 270 basis points to 42.5% for the year compared to 39.8% last year.

For the year, merchandise margins improved 120 basis points to 59.8%, and store occupancy costs improved 150 basis points to 17.3% of sales. SG&A expenses were 31% of sales this year compared to 30.9% of sales last year.

Turning to the balance sheet and cash flow. Inventory at the end of fiscal 2012 was in line with management's expectations and totaled $322 million, up 3.4% versus 1 year ago. The company remained in strong financial condition, ending the year with $288 million of cash and cash equivalents, down only $14 million from the end of last year. And at the end of the year, we had no cash borrowings under our $300-million credit facility.

As Alex noted, the company generated strong cash from operations of $142 million, affording us the flexibility to reinvest in the business, pursue our growth plans and return value to our shareholders. This past year, the company utilized $100 million of cash generated from operations to fund the repurchase of approximately 9.5 million shares, or roughly 8% of common stock, at an average cost of $10.53 per share under our initial share repurchase program.

Capital expenditures for the year totaled $62 million. Approximately $29 million was deployed toward the rollout of new merchandise fixtures across the chain, major remodels at 3 locations, lighting upgrades and other leasehold improvements. And approximately $8 million was used to open the 15 new Pier 1 Imports stores. We utilized approximately $25 million in capital spending for technology and infrastructure initiatives, including e-commerce, improved planning and allocation and replenishment systems, labor scheduling optimization and the replacement of certain legacy systems.

In fiscal 2013, we expect total capital expenditures to be in the range of $70 million to $75 million, with roughly half allocated to stores and the other half allocated to technology and infrastructure.

In fiscal 2012, we opened 15 stores and closed 9 locations, ending the year with 1,052 Pier 1 Imports stores. That includes 971 stores in the U.S. and 81 stores in Canada, for a total of 8.3 million retail square feet.

During fiscal 2013, we plan to open approximately 20 stores and close 8 for a net 12 new store openings. Alex mentioned strategically relocating stores within existing markets where the economics of doing such will provide solid returns. Again, this is an important part of our real estate strategy that we anticipate will result in increased sales productivity and store profitability, while continuing to gain market share.

Looking at the new year, the company issued the following financial guidance today for fiscal 2013 on a 52-week basis: We expect to achieve comp store sales growth in the mid-single-digit range. Earnings per share are expected to be in the range of $1.06 to $1.12, representing year-over-year growth of 13% to 19%. As you know, this fiscal year includes 53 weeks of operating results. We expect the 53rd week to contribute approximately $25 million to total sales and $0.01 to $0.02 to earnings per share. And as I noted earlier, capital expenditures are expected to be approximately $70 million to $75 million.

Thank you for your continued interest in our company. And I will now ask the operator to please open the call to questions at this time. Deborah?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Budd Bugatch with Raymond James.

Budd Bugatch - Raymond James & Associates, Inc., Research Division

I have a couple of questions. I won't take long. But on the comp guidance, as you look at the year, how should we think about it quarter-by-quarter? I know you've just given annual guidance. Is there any particular quarter where there might be a discrepancy? Or is it pretty much evenly spaced through the year?

Alexander W. Smith

Budd, I think you can assume pretty even quarter-to-quarter.

Budd Bugatch - Raymond James & Associates, Inc., Research Division

Okay. On your "$225 per square foot" plan, that does include the benefits of e-commerce. Just making sure that I -- I think you said it does, but I just wanted to make sure I'm right on that.

Alexander W. Smith

The $225?

Budd Bugatch - Raymond James & Associates, Inc., Research Division

The "$225 sales per square foot" goal.

Charles H. Turner

It's going to include the Pier 1 To-Go, but not the e-commerce fulfillment business.

Budd Bugatch - Raymond James & Associates, Inc., Research Division

So not Pier 1 To-You.

Alexander W. Smith

No, no, that's going to be a separate segment, Budd. That won't be included.

Budd Bugatch - Raymond James & Associates, Inc., Research Division

Got you. That -- okay...

Alexander W. Smith

But we could always cheat and add it in. It's a thought.

Budd Bugatch - Raymond James & Associates, Inc., Research Division

Say again?

Charles H. Turner

Nothing.

Budd Bugatch - Raymond James & Associates, Inc., Research Division

Okay. And on the marketing spend, I know it's going to stay around 5%. But it is going to vary quarter-by-quarter as it has this year and...

Alexander W. Smith

Yes, that -- now I'm speaking from memory, but we can confirm it when you talk to Cary later. From memory, the third quarter takes the biggest hit as a percentage of sales, because there's all that preholiday marketing, and then the fourth quarter is the lowest percentage to sales. I think 1 and 2 are roughly similar.

Budd Bugatch - Raymond James & Associates, Inc., Research Division

That's about right, yes. That's -- okay. That's -- I just want to make sure that, that was still on the plan. And finally for me, just on looking at CapEx, I think you're going to open 20 new stores. And if I did my math right on last year, it's about $600,000 per store. So of the half, I think you said $35 million for the stores, is of that about $12 million for the new stores?

Charles H. Turner

Roughly.

Operator

Your next question comes from Brian Nagel with Oppenheimer.

Brian W. Nagel - Oppenheimer & Co. Inc., Research Division

Couple of questions. First off, thank you for the guidance that you've given this year and longer term, but any comment on sales trends here thus far in Q1, as we head into the holiday -- Easter holiday?

Alexander W. Smith

Not really, Brian. So what we thought, now we're giving annual guidance. We'll kind of -- we'll stick to that. And the only monthly sales that you're going to hear from us are December.

Brian W. Nagel - Oppenheimer & Co. Inc., Research Division

Okay, fair enough. And the second question I have, I guess more for Cary, on the expense growth you addressed in your prepared comments, but I just want to make sure. How should we think about, maybe in dollar terms, the e-commerce investments we're going to see here, I guess presumably through Q1 and Q2 before -- as you head into the launch of that effort?

Charles H. Turner

Yes, the fixed expenses will be up a couple of million compared to last year, both first 2 quarters -- in each of the 2 quarters.

Brian W. Nagel - Oppenheimer & Co. Inc., Research Division

And so if we look at it -- going out looking backwards, if we look at that relatively fixed category, which expenses were tracking -- have been tracking higher than your, I guess, your guidance, is that overage, if you will, related primarily to the e-commerce launch? Or is there something else happening as well?

Charles H. Turner

No, it's also the performance pay. The incentive pay is in there.

Brian W. Nagel - Oppenheimer & Co. Inc., Research Division

Okay. And so that's simply a function of better sales then.

Charles H. Turner

Better performance on the bottom line.

Operator

Your next question comes from Alan Rifkin with Barclays.

Alan M. Rifkin - Barclays Capital, Research Division

First question. With respect to refurbished stores, how are those 125 refurbished stores doing relative to the corporate average?

Alexander W. Smith

Well, that's a very good question. And I could talk all day about that because the answer is not just the corporate average. Really, what we do is we look at the performance of those stores versus the markets that they're in. So we benchmark them against the individual market rather than the average because, as you know, we get a spread of performance across the country. But no, we're -- so on that basis, we're very pleased with them, and that's why we're continuing to make the investments.

Charles H. Turner

But I think you also heard us saying not all stores are created equal. And for some of these stores, we're -- and as you heard Alex say, we're not going to spend very much capital, but we do improve the sights in the store.

Alexander W. Smith

Yes, yes, now I think that's an important point. I mean, we really are focusing our store capital on, as you would expect us to, on those stores where there is the biggest potential upside really in dollars terms rather than percentage.

Alan M. Rifkin - Barclays Capital, Research Division

Okay. And we appreciate the new 3-year guidance. And obviously, given your strides in the last 12 months, not a total surprise. If you look back in the last 12 months, you increased your sales per square foot by $26, right, from $168 to $184. And together with that, your EBIT margins rose by 2 70. For the next "$25 per square foot" growth, from $200 to $225, you're now calling for a 12% EBIT margin. Would it not -- and again, I appreciate the new guidance and I know that it's way out in the future, but would it not be reasonable to expect that incrementally the next $25 of square footage gains in productivity should yield greater growth to the EBIT margin than what we saw in the last 12 months?

Charles H. Turner

Alan, I think we're just providing room to allow us to invest in other growth initiatives. As everyone knows, this coming July will be a day 0 for e-commerce and we anticipate having to continue to reinvest.

Alan M. Rifkin - Barclays Capital, Research Division

Okay, fair enough. But am I correct in assuming, though, that the relationship is not necessarily linear between incremental sales productivity and EBIT margin gains?

Charles H. Turner

Let's get to $200 per square foot, and then we'll go from there.

Alan M. Rifkin - Barclays Capital, Research Division

Okay. And just one more, if I may. It's a follow-up to Budd's question. So most of the retailers that we follow actually allocate the e-commerce revenues based on ZIP code to a store. Your goals for $225 are not doing that. So theoretically, if you get the 10% of revenues via e-commerce in a few years, can we think of that as really being $225 almost plus 10%, which would be closer to $247?

Alexander W. Smith

Well, I don't think we'd ever put those sales -- for the way we measure the store productivity, we would never put those sales back into the retail space because they are different. I mean, if that helps you to think about it that way in your modeling, that's fine. What we will do, by the way, just as a point of clarification, we are going to credit the stores with the sales, particularly those sales that have originated in the stores, for the purposes of store incentives. And I think that's an important thing to note.

Charles H. Turner

And then also, Alan, we just don't know how much that 10% of sales will be somewhat cannibalized by store sales. And we'll take the sales either way. Your calculation is assuming the 10% is totally incremental.

Alan M. Rifkin - Barclays Capital, Research Division

Right. But your guidance, Cary, for $225, assumes some cannibalization from e-commerce, obviously, right?

Charles H. Turner

Yes.

Operator

Your next question comes from Matt Nemer with Wells Fargo Securities.

Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division

So first, I wanted to just see if -- Alex, if you could give us sort of a competitive update of what you're seeing here this spring. We've noticed that a couple of home furnishings retailers are already taking some pretty big markdowns to outdoor furniture, which seems kind of strange given the weather we've had. So I just wanted to get a little bit of a competitive update in your -- kind of your core competitive set.

Alexander W. Smith

Well, I think at this time of year, you -- I think, actually, on the outdoor furniture, you see this every year. A lot of our competitors do these sort of introductory offers. We don't do that. We've no need to do that. Our merchandise is incredibly well priced and our customers are responding well to it. And in terms of the -- in terms of the broader competitive situation, I mean, I really go back to what I said in my remarks. I mean, there's a lot of very smart people out there running terrific businesses, and our job is to be smarter and more terrific than them and take market share that way. But it's -- certainly, nobody's going to sleep out there. That's for sure.

Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division

And then could you talk to -- you mentioned store refurbishments that don't require any incremental capital. Could you just refresh our memory on exactly what you're doing in those stores? And maybe you can give us some color as to the lift that you see in those stores versus those where you do a new lighting and fixture package.

Alexander W. Smith

Yes, the -- I mean, really, the no capital relays are where we bring the relationship of the departments to mirror what we're doing with the capital relays. So it's really a movement to having all our shelf goods down one side of the store and then all our furniture down the other side of the store and our seasonal in the middle. That's a simplification, but that's broadly it. And that makes it very -- that makes it easier for our visual team when they're producing the visual sets for the stores, that we don't have to keep producing so many variations. As far as the improvements to those stores, you know we haven't looked at it in that way. It just really all feeds into the comp, I think.

Charles H. Turner

And then, Matt, remember, when we said no additional capital, it does have -- those stores do have the new fixtures.

Alexander W. Smith

Yes, some.

Charles H. Turner

Some.

Alexander W. Smith

Yes.

Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division

Okay. And then you mentioned in your prepared remarks that you've been working on vendor partnerships for Pier 1 To-You. I'm wondering if you can give us a sense for how much merchandise on the e-commerce site will be incremental or new and not carried in the stores, if you have that kind of detail at this point.

Alexander W. Smith

Sure. And I take you back to what we've always said, is that we're going to go into this slowly. We're not going to rush at it. So it's the crawl-walk-run philosophy. So initially, we're just planning to put a major subset of the SKUs that you can today find in the Pier 1 Imports stores. But that's just Phase 1. As we move through the fall and into the early spring, we will start to introduce online-only SKUs, some of which will be extensions of existing departments, some of which may be new departments. And then we'll gradually kind of ramp that up over time. So you're going to see it sort of moving incrementally over the next few years.

Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division

Okay. And then just lastly, I know you made another comment in your prepared remarks about impulse -- new impulse items in the store. I'm wondering if you could give us a little more detail on that.

Alexander W. Smith

Well, not really. It's just -- what we're always trying to do is to balance -- I said not really; now I'm going to answer it. So we're always trying to balance our furniture sales with our shelf good sales to make sure that we get that sort of right balance between units per transaction, transaction value, bringing customers back in frequently through the lower ticket items. And it's just a strategy aimed to make sure that we keep that balance correct. I mean, I think that's the best way I can explain it to you.

Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division

And just to clarify a topic that's come up -- that came up on an earlier question. Will you -- on Pier 1 To-Go sales, will those be included in comp store sales or not?

Alexander W. Smith

Yes, sir.

Operator

Your next question comes from Simeon Gutman with Credit Suisse.

Simeon Gutman - Crédit Suisse AG, Research Division

A clarification on the rollout of e-commerce. It sounds like all the pieces now are in place as far as other vendors and working out the infrastructure. Is that right? Are there other pieces? And then -- and maybe this was asked, but is there a further acceleration in the expense run rate associated with some of those efforts?

Alexander W. Smith

The pieces are fully in place. The jigsaw is locked together. And really, now the team, both the -- I don't want to give you the impression this is all outside people. Some of the folks here as well are working very hard on this. So we're now just on the detailed implementation phase, ready for our go-live date at the end of July.

Simeon Gutman - Crédit Suisse AG, Research Division

Okay. And it sounds like at least the next, call it, year to, is it -- I don't know, is it 24 months is the right way to think about it? And I guess the incremental, there may not be an incremental step-up a year from now. Or should there be some other piece to it?

Alexander W. Smith

Yes, I think that's really hard to answer because, as Cary said a few minutes ago, the day we start online, we're then going to have to react to the magnitude of the business. And we will invest appropriately depending on what the reaction is. So if that does involve us bringing forward or accelerating cost -- and I'm not saying it will, but if it does, we'll certainly keep you fully up to speed with that.

Simeon Gutman - Crédit Suisse AG, Research Division

Okay. And then not to ask about product margin because we've done so good not having one question on it so far, but can you just talk about sort of the shipping costs or the input process, not about the other side in planning, just more on are you seeing any of the sort of the first cost changes there?

Alexander W. Smith

Do you mean on -- when we're buying the product? Are we now on...

Simeon Gutman - Crédit Suisse AG, Research Division

Buying and/or transportation.

Alexander W. Smith

Oh, okay. Well, the battle to control the first cost is an ongoing one that we started now, I guess -- it must be nearly 2 years ago. I don't think the pressure is intense as it was when all the talk was about price rises out of China. But day in and day out, these countries are moving up their minimum wages and we have to react to that by developing sort of more compelling product. It's not something that concerns us overly, but it's something, like all our competitors, we're very cognizant of and trying to work through it in a smart way. Do you want to comment on the fuel, Cary?

Charles H. Turner

I think in terms of ocean freight, which is a major piece of the total cost, we're fortunate that we have locked in contracts for the next couple of years. If oil goes a lot higher, we'll be paying a little bit more. But I think the good news is we know what the expense is.

Alexander W. Smith

Yes.

Simeon Gutman - Crédit Suisse AG, Research Division

Okay. And then last 2. On occupancy, any dramatic changes in the trajectory? And then, Cary, you've given some helpful color on geographies. Curious if there's anything to call out this time.

Charles H. Turner

No, nothing on geography. And in terms of occupancy, I think you'll see it going up a little bit more than last year. This past year, it went up 6 million. With the additional 15 new stores, it'll go up a little bit more than that.

Operator

Your final question comes from Anthony Chukumba with BB&T Capital Markets.

Anthony C. Chukumba - BB&T Capital Markets, Research Division

A bit of a follow-up from the prior question on occupancy. I was just wondering what you're seeing in the -- now that you're opening stores again and you've got some more store openings planned for this year, what you're seeing in terms of the commercial real estate market, if it's still as weak as it was a few years ago. Is it tougher to find good locations? Are you getting any pushback from landlords in terms of signing up new store leases or renewing store leases? I just wanted to get some color there.

Charles H. Turner

Okay. In terms of the real estate market, I think you guys know, just as well as I do, the A centers are getting better and the B and Cs are falling. In the B and C locations, we feel we have some leverage. If there's a bookstore there or some other vacancy, we have the upper hand in terms of negotiating. I think the good news is we have a lot of flexibility in any given year. Over the next 5 years, we probably have 10% to 12% of our store portfolio coming up for some type of lease renewal, so that we can negotiate with them. But the A centers, as long as we see that the occupancy-to-sales ratio is in line, then we're very happy to sign up for the rent.

Anthony C. Chukumba - BB&T Capital Markets, Research Division

Okay. And then just one quick follow-up. Just wondering what -- how you guys were thinking about share repurchases -- the share repurchase activity kind of slowing down in the back half of the year? And I was just wondering, is that because your stock price is moving up, so you just didn't want to -- it wasn't -- you didn't think that would be quite as opportunistic? Or was there more to it than that?

Alexander W. Smith

Well, we've still got the $100 million to go, as you know. I'll tell you what we're not going to do, and we're not going to just have it sitting out there in perpetuity and not buy back the stock. I mean, it fully is our intention to spend that $100 million. We do want to spend it wisely. I do want to remind you that in a considerable part of the back half of last year, and we were blacked out because we hadn't filed a trading plan and so we were unable to buy. So there's nothing more...

Charles H. Turner

I think the best thing last year was that was our goal, was to get the $100 million last year, and we did it sooner than I think a lot of people thought we would.

Alexander W. Smith

Okay, everybody. Thanks for joining us today and we'll see you next time.

Operator

This concludes today's conference call. At this time, you may disconnect.

Alexander W. Smith

Thanks, Deborah.

Operator

Thank you, have a great day.

Alexander W. Smith

Thanks, bye-bye.

Charles H. Turner

Bye.

Operator

Bye.

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