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Pier 1 Imports Inc. (NYSE:PIR) reports preliminary financial results for the quarter ended 2012-08-31.

Pier 1 Imports Inc. (PIR-US) recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. CapitalCube's analysis is based on the company's performance over the last 12 months (unless stated otherwise).

Pier 1 Imports Inc.'s analysis versus peers uses the following peer-set: Bed Bath & Beyond Inc. (NASDAQ:BBBY), Williams-Sonoma Inc. (NYSE:WSM), JD Group Ltd. (JDG), Mattress Firm Holding Corp. (NASDAQ:MFRM), Shimachu Co. Ltd. (OTC:SHMHF), Leon's Furniture Ltd. (OTCPK:LEFUF), Haverty Furniture Cos. Inc. (NYSE:HVT) and Kirkland's Inc.(NASDAQ:KIRK). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Quarterly (USD million)2012-08-312012-05-312012-02-292011-11-302011-08-31
Revenues367.6361.1476.8382.7339.6
Revenue Growth %1.8(24.3)24.612.71.5
Net Income26.217.8115.223.016.6
Net Income Growth %47.2(84.5)401.238.218.0
Net Margin %7.14.924.26.04.9
ROE % (Annualized)22.814.9105.624.716.7
ROA % (Annualized)13.48.960.013.09.1

Valuation Drivers

Pier 1 Imports Inc. currently trades at a higher Price/Book ratio (4.6) than its peer median (2.9). We classify PIR-US as Harvesting because of the market's low expectations of growth (PE of 11.5 compared to peer median of 15.6) despite its relatively high returns (ROE of 44.2% compared to the peer median ROE of 14.5%).

The company has a successful operating strategy with above median net profit margins of 11.5% (vs. peer median of 5.9%) and relatively high asset turns of 2.1x (vs. peer median of 1.7x). This suggests that the company has a dominant operating model relative to its peers. PIR-US's net margin is its highest relative to the last five years and compares to a low of -9.8% in 2009.

Economic Moat

Changes in the company's revenues are in-line with its peers (annual revenue changed by 9.8%) but its earnings performance has been better -- its annual earnings changed by 68.7% compared to the peer median of 22.7%, implying that it has better cost control relative to its peers. PIR-US currently converts every 1% of change in revenue into 7.0% of change in annual reported earnings.

PIR-US's current return on assets is better than its peer median (24.6% vs. peer median 8.6%) but this contrasts with its less than peer median return on assets over the past five years (4.2% vs. peer median 5.7%). This performance suggests that the company has improved its operations relative to peers.

The company's gross margin of 43.5% is around peer median suggesting that PIR-US's operations do not benefit from any differentiating pricing advantage. However, PIR-US's pre-tax margin is more than the peer median (11.3% compared to 9.0%) suggesting relatively tight control on operating costs.

Growth & Investment Strategy

While PIR-US's revenues growth has been around the peer median (5.1% vs. 4.9% respectively for the past three years), the stock's below peer median PE ratio of 11.5 implies below median long-term growth as well. The market likely sees the company's long-term growth prospects to be fading.

PIR-US's annualized rate of change in capital of 15.3% over the past three years is higher than its peer median of 7.9%. This investment has generated an above peer median return on capital of 29.6% averaged over the same three years. Evidently, the relatively high capital investment was successful given the relatively strong growth in its returns.

Earnings Quality

PIR-US has reported relatively strong net income margin for the last twelve months (11.5% vs. peer median of 5.9%). This margin performance combined with relatively low accruals (-5.3% vs. peer median of 2.3%) suggests possible aggressive accounting and an overstatement of its reported net income.

PIR-US's accruals over the last twelve months are negative suggesting a likely draining of reserves. Moreover, this level is less than the peer median, which suggests that not only is the company draining reserves but is doing in a relatively strong manner compared to its peers.

Trend Charts

Company Profile

Pier 1 Imports, Inc. manufactures, markets and distributes home furnishings accessories. The company operates through its wholly owned subsidiaries, which operates, owns and leases retail stores, warehouses, regional spaces and distribution centers and also acquires temporary distribution centers from time to time through short-term leases in United States and Canada. Its products include furniture products such as decorative home furnishings, dining, kitchen goods, bath, bedding accessories and other specialty items for the home. The company was founded in 1962 and is headquartered in Fort Worth, TX.

Disclaimer

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Source: Earnings Analysis For Pier 1 Imports Inc.: Harvesting Out Profits