Pier 1 Imports (NYSE: PIR), the largest retailer of decorative home furnishings in North America, announced third quarter earnings after the market closed on December 18 and its stock has reacted by soaring about 8%; let's take a closer look at the results and the company's outlook going forward to determine if we should consider buying into this rally or if we should wait for it to subside.
Breaking Down The Quarterly Report
Here's a summary of Pier 1 Imports' third quarter earnings compared to analysts' expectations and its results in the same period a year ago:
|Earnings Per Share||$0.20||$0.20||$0.26|
|Revenue||$484.50 million||$488.52 million||$465.46 million|
Pier 1 Imports' earnings per share decreased 23.1% and its revenue increased 4.1% compared to the third quarter of fiscal 2014, as net income decreased 33.2% to $17.9 million and comparable store sales increased 2.5% including e-commerce.
For the quarter, Pier 1 Imports' gross profit increased 1.3% to $204.91 million and its operating profit decreased 26.3% to $31.77 million, as its gross margin contracted 110 basis points to 42.3% and its operating margin contracted 270 basis points to 6.6%; these weak results can be attributed to costs of sales and selling, general, and administrative expenses increasing 6.2% and 7.8%, respectively, both of which outpaced the company's 4.1% revenue growth.
In terms of shareholder returns, Pier 1 Imports repurchased 1,781,900 shares of its common stock for approximately $23.3 million in the third quarter under the $200 million share repurchase program it authorized in April of 2014; the company went on to note that there is now $123.2 million remaining on this repurchase authorization. In addition, the company paid out a quarterly dividend of $0.06 per share for a total cost of approximately $5.36 million, bringing its total shareholder returns to $28.66 million in the third quarter.
Lastly, as a result of its performance in the first nine months of the year, Pier 1 Imports reiterated its full-year outlook on fiscal 2015; here's a summary of what it expects to accomplish:
- Earnings per share in the range of $0.95-$1.05, a decrease of 6.3% to an increase of 4% from the $1.01 earned in fiscal 2014.
- Gross profit margin in the range of 40.5%-41.5% compared to 42.1% in fiscal 2014.
- Comparable store sales growth, including e-commerce, in the mid-to-high single digit percentage range on top of the 2.4% growth reported in fiscal 2014.
Should You Buy Into This Rally?
Pier 1 Imports is the leading retailer of decorative home furnishings in North America, and increased traffic at its stores and web site led it to a strong third quarter performance; the company reported year-over-year growth in revenue, comparable store sales, e-commerce sales, and gross profit, which allowed it to reaffirm its full-year outlook, and its stock has responded by rallying approximately 8% higher.
Even after the large post-earnings pop in Pier 1 Imports' stock, it trades at less than 14.5 times the high-end of the company's full-year earnings per share outlook on fiscal 2015, less than 14 times analysts' earnings per share estimates of $1.09 for fiscal 2016, and a mere 12 times analysts' earnings per share estimates of $1.26 in fiscal 2017, all of which are very inexpensive compared to its five-year average price-to-earnings ratio of 16.6. With these valuations in mind, I think long-term investors could buy into this rally with the intention of adding to it on any weakness provided by the market.
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