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Pier 1 Imports, Inc. (NYSE:PIR)

Q4 2008 Earnings Call

April 10, 2008 11:00 am ET

Executives

Nancy Benson – Assistant Treasurer & Director of IR

Alex Smith – President & CEO

Cary Turner – Executive VP & CFO

Analysts

Lauren Levitan - Cowen and Company

Budd Bugatch - Raymond James

Colin McGranahan - Sanford C. Bernstein & Co.

Michael Baker - Deutsche Bank Securities

Jeffery Stein - Soleil-Stein Research

Operator

Good morning ladies and gentlemen. This is Pier 1 Imports year-end conference call. (Operator Instructions) I would now like to introduce Mrs. Nancy Benson, Assistant Treasurer and Director of Investor Relations for Pier 1 Imports; Mrs. Benson, you may begin.

Nancy Benson

Good morning everyone and thank you for joining us this morning. Today we will hear from our President and Chief Executive Officer, Alex Smith and Executive Vice President and Chief Financial Officer, Cary Turner. The agenda for today’s call will be to hear opening remarks followed by a brief discussion of our fourth quarter and year-end results that were reported earlier today. We will provide an update on our business and a general outlook for fiscal 2009 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 21(e) 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 condition 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 filing including our Annual Report filed 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 this morning’s press release, you may obtain one on the Investor Relations page of our website located at www.pier1.com.

Now I would like to turn the call over to Alex.

Alex Smith

Thanks Nancy, good morning everyone welcome to our call. Its hard to believe how much has changed since I conducted my first conference call with you all last April. A year ago this company this looking into the abyss. We had just lost $227 million and we were burning through cash at an alarming rate. The business had lost its way. Economic headwinds were beginning to blow. There was plenty of bad news. Fortunately, amidst all the dark clouds we could see some light, strong brand equity and a customer who would give us another chance. The best news of all was that most of Pier 1 Imports’ problems were self-inflicted.

What a difference a year makes. Twelve months into our endeavors to return our well-loved company to profitability and beyond, we have improved our conversion rates, achieved comp stores sales gains, strengthened our margins, cut our net loss in half and are generating positive EBITDA. While we knew these results were possible, they have exceeded our own internal expectations.

When I focus on just the fourth quarter results we have delivered a net income of almost $14 million versus a loss last year of nearly $60 million. This is a dramatic turnaround. I want to thank all of our associates who have worked with focus, discipline and most importantly passion, to make this happen. I am very optimistic about our future but before we move on to chat about fiscal 2009 I’d like Cary to go over the results of our fourth quarter and our fiscal year, Cary?

Cary Turner

Thank you, Alex. Earlier today we reported earnings of $0.16 per share for the fourth quarter compared to a loss of $0.67 per share for the year-ago period. This is the first time in 12 quarters that the company has reported positive earnings per share. Additionally the company reported positive EBITDA for the quarter of $24.9 million. Comparable store sales increased 2.5% for the fourth quarter. We had positive comparable store sales each month during the quarter. Net sales from continuing operations for the fourth quarter were $436.7 million, a 7.8% decline from $473.7 million a year ago.

The primary reasons for the decline was the reduction of store count by a total of 79 stores and the extra week included in last year’s results. Merchandise margins were 48.1% of sales in the fourth quarter. As always fourth quarter merchandise margins were lower than the third quarter because the fourth quarter includes the winter sale. For the year, merchandise margins increased to 48.5%, up 60 basis points from 47.9% last year.

Store occupancy expense declined by $4.6 million in the fourth quarter and declined $10.2 million for the year when compared to the same periods last year as a result of reduced rental expense related to closed stores. Overall gross profit margins for the quarter improved to 31.8% of sales and remained steady at 29.1% of sales for the year.

We continued in our efforts to reduce costs throughout the quarter. As outlined in the table in today’s press release SG&A expenses included reductions in special charges totaling $15.7 million for the quarter and $36.2 million for the year. Excluding special charges incurred during the same periods last year, savings in SG&A expense totaled $34.5 million for the fourth quarter and $124.9 million for the year. During the fourth quarter the primary contributors to the decrease in ongoing costs were savings of approximately $9 million in marketing expense, $13.6 million in payroll and $11.9 million in other general administrative costs when compared to the fourth quarter last year.

Inventory at the end of the fourth quarter was $412 million or $46.00 per-square-foot compared to $392 million or $42.00 per-square-foot last year when you exclude last year’s $32 million inventory evaluation adjustment to below cost. As we told you at the end of the third quarter we made a strategic decision to increase the level of inventory in the stores by $30 million.

Cash and cash equivalents were $93.4 million at the end of the fourth quarter. During the quarter capital expenditures were $1.6 million bringing our fiscal year total to $7.2 million of which $4.5 million was invested in our existing stores.

Our accounts payable has increased when compared to the same period last year. This is primarily the result of increased spend on inventory and more favorable payment terms with our vendors which is one part of our supply chain improvements.

During the quarter we closed 11 Pier 1 Import stores bringing our net closures to 79 for the year. We ended the year with 1,117 Pier 1 Import stores with 1,034 in the United States and 83 stores in Canada.

Now I’d like to turn it back over to Alex.

Alex Smith

Thanks Cary. The fact that we made such good progress despite the strong headwinds we face speaks the fact that we, Pier 1 Imports, are as relevant today as we ever were. If we do a good job in executing our simple and robust business model we have the ability to continue to take market share even in the very difficult times we face today.

How will we do it? Well, first and foremost, we will continue to focus on our business priorities which we have discussed with you over the last year. And rather than touch on each of them in detail, I will speak more generally about our progress and our plans to improve execution in every aspect of our business.

I’m often asked where we are in the transition of our merchandise offering. In terms of the overall look and feel of the merchandise and the direction that we are going in, I am extremely pleased with what our merchant team has achieved. The buyers and the planners are certainly aiming at the right targets. However as I told you on the last call, our execution is far from perfect. We are still not hitting the bull’s eye every time and indeed sometimes we miss the target completely.

Having said that, consider this. Many of our buyers have been with us for less than a year, some less than six months. How much stronger will our execution be going forward as they gain more experience in buying for Pier 1 Imports. The same can be said of our planning allocation team. In many respects they are just starting to perform to the level which we need and require.

When I look at our stores today I think we have the inventory levels and the SKU counts about right. We have the ability to make impactful merchandising statements and we have really brought the treasure hunt feel back to our stores. At a department and category level there is still some balancing to be done but overall we are in a good place.

Our strategy to increase units-per-transaction and to give our customers a reason to visit our stores more often is working well, partly a result of our development of frequently changing assortments and impulse items and partly due to improvements our teams are making at the store level. Impulse item assortments do not of course replace furniture assortments. They are in addition to. Furniture remains and always will remain a very important part of our business; approximately 35% to 40% of total sales. And we have been just as busy repositioning and growing the SKU base in furniture as we have in our shelf goods.

What we have done is to reduce the number of SKUs with very high prices, let’s say over $500, and to ensure that each individual furniture department has a proper balance of price points. We have improved many of our assortments such as outdoor furniture, dining, accessory pieces and accent items. Indeed we are extremely happy with the way our furniture assortments are developing.

In the stores the departmentalization project which makes our stores easier to shop for our customers and easier to operate for our associates now enters the next phase. As you visit stores over the next few months, you will see changes in merchandise placements and grouping. Anecdotally from customers and associates alike, we hear that they are very pleased with what we’ve done so far. So as we continue to concentrate on enhancing the in-store experience for our customers through improvements in store presentation and customer service we expect units-per-transaction and conversion rates to continue to improve.

During the fourth quarter we enjoyed increases in conversion rates and units-per-transaction, while the total transaction values stayed about the same. And these improvements are a direct result of our attention to the profit equation. As you know the relationship between units’ sales, units per transaction, average ticket, dollar sales, conversion rate and average transaction value is a complex one and we watch these variables very carefully and if we think we’re getting out of line on any one of them, we will adjust our plans going forward.

I know I’ve talked about this before but I want to repeat how pleased I am with our disciplined approach to promotions and discounting; in other words markdowns. Instead of using markdown dollars to generate sales, we will continue to stress our every day fair values and use markdown dollars to clean up and manage our inventory. Today we do have more clearance in our stores than we would like, but as we buy more accurately, hit that bull’s eye more often and de-risk the business with smaller buys, our markdown rates will come down and with less markdown, fewer promotions the GP rates will naturally increase.

On the subject of inventory levels I told you a few moments ago that we are happy with the inventory levels in the stores but our inventory in the distribution centers is not at an optimum level. We carry too much replenishment on basis stock. This year we will start the process of reducing distribution center inventory on an average store basis. We will start the process of shrinking months of supplier inventory by buying closer to in-store dates. We will be helped in this by the reduction of in-transit times that the team has achieved over the last few months. Our supply chain is not only quicker but cheaper than 12 months ago.

The supply chain savings allow us to mitigate the inflation of vendor costs and rising transportation costs enabling us to, and this is very important, enabling us to maintain our initial markup at historical levels.

We are also working hard at refining our marketing message as well as reviewing the media that we’re using to get the message out there. The balance we want to achieve is between a pure branding message and traffic driving. We will continue to utilize retail mailers, which have done a very nice job for us, but are concentrating on achieving greater impact by manipulating frequency of mailing and total reach. We plan to increase our use of newspaper inserts which we tested last year across the nation to coincide with key selling periods. The first of this year’s will feature gifts for Mother’s Day.

As far as cost reduction and simplification is concerned we will continue to reap the benefits of our major efforts last year. We will of course continue to seek out more efficiency but the annualized savings of $160 million is real.

Our fourth quarter results have energized our entire company. We know that we’ve come a long way in the last 12 months, but we also know that we still have a long way to go. We have spent the last year getting lean and mean so that we can now focus all our attention on what matters; our merchandise and our customers.

I know externally the focus is always on comp store sales and we are focused on this too. Indeed we expect a modest comp store increase this year. We are however even more focused, if that is possible, on merchandise margin dollars and making the most margin out of every SKU that we buy. With this focus we expect to see meaningful improvements in our merchandise margins.

With that in mind, I’ve asked Cary to provide you with some insights, but not too much, as to what you can expect over the next 12 months. So now, I’ll turn it back to Cary.

Cary Turner

Thank you, Alex. As we look to fiscal 2009 sales and merchandise margins will be impacted by many variables including marketing spend, strategic markdown decisions and obviously the economy. We believe that we can drive incremental sales at optimal margins through increased conversion rate and units-per-transaction. Ultimately increases in traffic will be the key to sustaining a positive comp over the long haul.

Over the past year we have established an efficient cost structure and as previously indicated we expect our ongoing SG&A in fiscal 2009 to be $160 million less than fiscal 2007. Clearly operating margin dollars will be dependent on comp store sales and merchandise margins. We believe both will be directionally an improvement over this past year but we cannot provide specific guidance as to the level of improvement anticipated.

At this time we are planning a loss for the first quarter but dramatically less of one than last year. Don’t forget that last year we spent the entire first quarter liquidating discontinuing merchandise. We drove sales and traffic but not a lot of gross profit dollars. We are primarily focused this year on optimizing the margin dollars achieved on every SKU and achieving sustainable margins going forward. For the second, third and fourth quarters our goal is to get as close to or achieve a positive EBITDA before special charges. With our net operating loss carry-forward of approximately $200 million, we expect that the income tax expense will be minimal.

As Alex stated our distribution center inventory is not at the optimum level and this year we are going to work on that. Last year we exited 263,000 square feet of excess distribution center space and we anticipate exiting another 350,000 square feet this coming August. We expect to incur a $200 million charge in connection with the exit of this leased space and are confident that the ongoing operations will be more efficient. We anticipate that we will have $30 million less inventory in the supply chain by the end of the year and are forecasting inventory at the end of the year will be approximately $380 million.

In terms of capital expenditures we anticipate spending approximately $15 million to $20 million in fiscal 2009 with the primary spend relating to updating existing stores. We expect to open a few new stores and close 25. Our big store-closing program is behind us. We will continue looking for opportunities to relocate existing stores, open new locations and exit under-performing markets. Generally speaking, we are happy with both our store count and our nation wide coverage.

Last week we announced the pending sale of our corporate headquarters and you can see the line item on the balance sheet, office building held for sale. We do expect that the transaction will be accretive to earnings per share. SG&A will be impacted by the rent we will pay offset by the gain on the building being amortized over the lease term and the elimination of operating expenses associated with owning the building. Depreciation will decrease by $5 million and we anticipate a reduction of interest expense. We expect the transaction to close prior to June 30th.

Clearly the sale of our headquarters will be a benefit to our liquidity position. As to the use of the proceeds, currently we are evaluating all potential options to determine the best use that will address both our long and short term needs and goals.

This concludes our prepared remarks for today. We appreciate your continued interest in Pier 1 Imports and we will continue to update you on our progress on a quarterly basis. Now we would like to open it up for questions.

Question-and-Answer Session

Operator

Your first question comes from Lauren Levitan - Cowen and Company

Lauren Levitan - Cowen and Company

Alex I was wondering if you could provide us with any insights on what you’re learning from the consumer, maybe any sense as to how much of the business is coming from customers who’ve been in your historical file, who have a previous relationship with Pier 1 and are responding to the new product, or are there meaningful numbers of new customers who are new to the brand and similarly responding to what you’ve done. And then separately I’m wondering if you could give us any insights in terms of the marketing budget. I know you said that you’re still refining and making some changes in terms of uses of newspaper and other offerings, but I’m curious if the goal is for marketing to continue to be a source of the expense savings as we go into ’08 or should we think about the marketing levels from the prior year as the appropriate base case.

Alex Smith

Well as far as the marketing spend is concerned, that’s the easy one. We’re going to keep it at around that sort of 4% to 4.5% of sales. We don’t see—we think that’s a good number. What we are doing that’s very different this year though, if you look at how we spent our marketing in the last fiscal year, we spent it pretty evenly by quarter, which means that the marketing as a percent of sales was pretty high at the beginning of the year and then got lower as we went through; which really didn’t make a lot of sense. So what we’re doing this year is making the marketing cadence follow the sales. So in other words, we’ll be spending a lot more on marketing in the third and fourth quarters. The net result of that is for example in March; we spent just under half on marketing compared to LY. So that’s that piece.

In terms of whether we’re looking at frequency of shop from existing customers or acquisition, I can’t tell you the breakdown of what our customers actually are because I have no way of capturing that but I can tell you a few things. Firstly we’re doing very well on our Pier 1 Imports credit card. So those customers obviously are loyal repeat customers and we see an increasing spend on the card which is very encouraging. Secondly when we do do mailings we do divide it up so we send a proportion of—the biggest proportion goes to Pier 1 Imports customers who have shopped in the recent past. A smaller percentage goes to Pier 1 Imports shoppers who haven’t shopped let’s say for a year and then the final piece goes speculatively.

So we try and sort of cover all our bases. Anecdotally I can tell you that we’re getting—if you’ve talked to the store managers we’re getting a good balance. We’re getting our regular customers coming back and spending more and as word-of-mouth takes hold, we’re getting new customers into the store as well.

Lauren Levitan - Cowen and Company

Thank you and good luck.

Operator

Your next question comes from Budd Bugatch - Raymond James

Budd Bugatch – Raymond James

Congratulations on the quarter and the positive comps. Can you talk a little bit Cary, just for a second, maybe about where the additional $30 million or $35 million in cost savings come from this year? Is there any particular area or program that’s not yet been implemented that will be?

Cary Turner

No I think the two aspects of those additional savings going from the $125 million to the $160 million; the primary build is just the annualization of those savings. If you recall last year we started some of those savings at the end of the first quarter and some of them at the end of the second. So you’re going to see the primary build of that $35 extra million coming in the first two quarters.

And then the other thing as I alluded to, we are seeing savings on the supply chain but those are really going to be wrapped up in our merchandise margins and as Alex alluded to hopefully mitigate the inflationary pressures we are seeing.

Budd Bugatch – Raymond James

Yes, but the $160 million is the SG&A savings, right? So the supply chain will come through improved GP?

Cary Turner

Correct.

Budd Bugatch – Raymond James

Okay, I just want to make sure—I was trying to make sure I knew if there was anything else—actions going on. I know that you, I think you’ve got a new sales program or store program going in and I wondered if we get any discussion of what that might look like.

Cary Turner

No, we’ll probably expand on that the next quarter.

Budd Bugatch – Raymond James

Okay, secondly Alex, you said modestly positive comps, can you give us a feeling so far of what March and April may look like so far and what do you mean by modest? Can you maybe quantify a little bit of that for us?

Alex Smith

Well I can’t quantify modest Budd, I don’t want to be specific because in truth I don’t know and I think in all of these things—I just want to say, when we’re talking about what we’re seeing going forward there is so much noise in our numbers still. We want to make sure that when we give you a firm number, it’s a firm number and not something that’s too speculative. So I think as we kind of work through the next year and we get more consistency in our performance, we’ll be in a lot better position to be more specific with you.

What I can tell you is in the first quarter of last year if you remember we had a bit of a bloodbath and we got rid of a lot of merchandise so we generated positive traffic and positive comps certainly in April of last year so we’ve got to anniversary those numbers. But we didn’t generate many GP dollars. So I really want to just repeat what I said in the talk which is we are really focused on gross profit dollars. And if I look at the month of March sales were a little softer than we anticipated on the one hand, on the other hand we got a much better margin rate than we’d planned so when you net it all out we’re kind of happy.

Budd Bugatch – Raymond James

Cary you said loss for the first quarter and then getting a positive EBITDA or break even EBITDA beyond, does that imply then a positive or at least a break even quarter for the second quarter?

Cary Turner

I think we said we’d get as close to that as possible. When you run the numbers the first quarter is impacted by the lowest sales and the second quarter we do have the semi clearance so but by the time we get to the third and fourth quarters, yes we foresee getting positive EBITDA.

Budd Bugatch – Raymond James

And the last question goes to the number of stores and the potential store count, I had actually fewer stores planned in for this quarter. I thought you were going to close a few more stores. Are those stores now not do for closing or are they wrapped in the 25 for next year and then following just the last part of that question is, is that the last year of net store closings that we should project?

Cary Turner

The number of stores we closed was less and again I want to reiterate we are looking at every single store, at every single deal that the landlord presented to us and in some cases we wanted to give some stores and extra year which the landlord gave us, before we decide what to do with that store and some of those stores are included in the 25. Other stores came back very strongly and we’ve just taken them off the list of stores to close; so those two really are the primary drivers of that lower store closing number. As we look beyond next year, we are looking to expand as I said and I would say for 2010 that the number of openings and closings will probably offset each other.

Budd Bugatch – Raymond James

Okay, thank you very much.

Operator

Your next question comes from Colin McGranahan - Sanford C. Bernstein & Co.

Colin McGranahan - Sanford C. Bernstein & Co.

I wanted to focus a little bit on the merchandise margins and it sounds like that’s also your primary focus, the margin dollars this year. First in terms of the fourth quarter understanding that you’ve got the bull’s eye, and you’re still not hitting, if I can mix my metaphors, doubles every time you come up to the plate, was the 48%ish merchandise margin in line with what you’d expected and maybe give us a little bit of color around where markdowns were through the quarter in terms of different classifications of departments?

Alex Smith

Yes sure, I think we went into sales the week after Christmas, we focused the sales on two things; clearing the seasonal merchandise that we didn’t want to carry forward and then we also added into that sale a number of SKUs that either had had their day or just hadn’t performed. So I don’t know, you always want your margins to be higher Colin, of course you do, but I think that was a—if you think of where we started in all of this I think that was a pretty good achievement frankly.

Colin McGranahan - Sanford C. Bernstein & Co.

Okay, then thinking the year ahead and I know its very difficult to get specific, sounds like margins are up a bit in March relative to and sequentially I think the first quarter is always a little bit better, but last year if you back out the liquidation in the first quarter of last year, looks like merchandise margins were in the low 52% range. Is that a level that you think is achievable in the first quarter, maybe even achievable for the year?

Alex Smith

Well listen you know our business model. You know that to be successful we have got to get those merchandise margins up past the 52%, 53%; that’s when we really kind of start to make money in this business. So we’re focused on getting to that position. But there’s a million what if’s between here and now. All I can tell you is that you know we learn a lot every day. We learned a lot last holiday in terms of what quantities to buy, what sells and what categories our customers reacted to. So we’re going to be executing a lot better in the fourth quarter of this year and we’re just going to keep working away at it a day at a time. That’s kind of what we do.

Colin McGranahan - Sanford C. Bernstein & Co.

Okay and then just finally you talked about giftable items, impulse items, Mother’s Day coming up, can you talk about some specific classifications or items that we might be seeing appear in the store in the coming year?

Alex Smith

If you recall before Christmas we set up the gift table and we had a lot of particularly female-focused gifts on there which was very successful. Cary has just handed me a copy of our newspaper insert that goes out at the end of this month which is called Aromarama and Momarama, and that features a lot of giftable fragrance items, a lot of packaged candles and a lot of fragrance, it features some jewelry, some small accessory pieces, some small decorative furniture pieces, some collectables, I mean its just a wonderful sort of potpourris, some photo frames, and some chocolates. So it’s kind of—its what we said, it’s that wonderful kind of eclectic mix which makes the treasure hunt so much fun for our customers.

Colin McGranahan - Sanford C. Bernstein & Co.

Okay great, sounds like I need to get in there and get my mom back on the positive list. Good luck.

Operator

Your next question comes from Michael Baker - Deutsche Bank Securities

Michael Baker - Deutsche Bank North America

A couple of questions really following on what Colin just asked, you had commented that you expected merchandise margins to be up this year, I think you said meaningfully. So is that off the 48.5 that you reported or do we adjust back the liquidation in the first quarter and then specifically I think throughout the second and third quarter you had somewhere in the neighborhood of about $46 million in Pier 1 Kids clearance so that meaningful improvement, I’m just trying to understand what the base is.

Cary Turner

Mike, when I take a look and take a step back and as Alex said, there’s been a lot of noise over the last 24 months but when I take a look at normalized margins if you will, fiscal 2007 prior normalized margins maybe just under 50%. This past year when you back out the noise from Modern Craftsman and Pier 1 Kids and all of that it’s maybe just under 51%. So I think without pinpointing where we are we probably have an internal target of moving up to 52% but as Alex said there’s a lot of things going on. But that’s sort of how we’re looking at this business and then going north of there once we achieve where we want to be.

Michael Baker - Deutsche Bank North America

That’s very helpful thanks and that I assume that includes whatever you might need to do to clear some of the distribution center inventory that you talked about?

Alex Smith

No, the distribution center—no we’ll just manage our way through that.

Cary Turner

That will just take care of an ordinary…

Michael Baker - Deutsche Bank North America

That’s what I mean, in other words there’s not going to be a one-time write-down or anything like that?

Cary Turner

No, as Alex said, that’s just more core items and replenishment items and ….

Alex Smith

It just means that we don’t replenish the DC inventories much, so we just lay off on the orders until we manage that inventory down.

Michael Baker - Deutsche Bank North America

Understood, good. One more question; just a merchandising question. You had mentioned chocolates, is food an opportunity to put into the stores, maybe some impulse stuff around the checkout or something along those lines to drive additional same-store sales?

Alex Smith

Well that’s kind of what we—yes is the answer to that and some of our stores—I think 250 stores now we’ve put like a little spin fixture in which has got chocolate bars on it and that’s near the register and that’s exactly the sort of thing we want to do.

Michael Baker - Deutsche Bank North America

And that could roll out to other stores this year?

Alex Smith

Sure. We’re very prudent about these things. We want to test things first and make sure that we’ve got it right but then if it works, sure we’ll roll it out.

Michael Baker - Deutsche Bank North America

Great thanks I appreciate the color.

Operator

Your next question comes from Jeffery Stein - Soleil-Stein Research

Jeffery Stein - Soleil-Stein Research

I just want to make sure I understand the SG&A equation, it looks like based on what you stated in the release, you’re projecting around $430 million of SG&A this year and I just want to make sure that that is in fact what you’re implying. The reason I ask that is obviously you’re going to have inflation, other inflation in your costs. I know you indicated that you expect to achieve some savings in the supply chain and so forth but with the inflation that we’re seeing, the weakness in the dollar and so forth, can you hold your SG&A at that--?

Alex Smith

Yes of course we can, yes because what we’re doing is we’re taking out costs so of course some costs go up be we offset those by costs that we take out so we absolutely can do that.

Jeffery Stein - Soleil-Stein Research

Okay, so the $430 million is the number?

Cary Turner

Jeff, let me talk to you after the call, I want to make sure you’re looking at the right numbers.

Jeffery Stein - Soleil-Stein Research

Okay I’m looking at $466.8 million and then we’re taking another $35 million out of that.

Cary Turner

And that’s fair.

Jeffery Stein - Soleil-Stein Research

Okay now does that also include the adjustment for the headquarters? Or would that be incremental to that number?

Cary Turner

Like I said, in SG&A we’re going to have the rent offset by the gain offset by the expenses and once we close on the transaction, I’ll give you more guidance on the exact numbers.

Jeffery Stein - Soleil-Stein Research

Okay so the $430, the adjusted $430 that we’ve just kind of agreed on, that would not include any further adjustment from the sale of the headquarters that could be incremental to that.

Cary Turner

Correct.

Jeffery Stein - Soleil-Stein Research

Okay very good. And last question for you Cary, buying and occupancy expenses, what kind of comp increase do you need to leverage your occupancy costs?

Cary Turner

Well as you can see any comp is beneficial when we take a look at the—what we are seeing is there are increases in property taxes and [cam] but we’ve been able to mitigate those with some improvements on utilities, just based on some of the things we’re doing in the stores. So really any comp.

Jeffery Stein - Soleil-Stein Research

Okay thank you very much.

Alex Smith

Okay everybody I think that’s it for today. Thanks for talking to us. We’ve enjoyed the call and we’ll talk to you again in three months or so.

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Source: Pier 1 Imports, Inc. F4Q08 (Qtr End 03/01/08) Earnings Call Transcript
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