Could Pier 1 Imports Become More E-Commerce Than Plain Retail?

| About: Pier 1 (PIR)
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Summary

Brick and mortar may be dying but PIR has found a way to make it thrive.

Who would want to buy furniture online? These days a large and quickly growing population, kind of like books back in the 1990s and AMZN.

PIR appears to be undervalued based on guidance and growth prospects.

I can't believe I said that title. I remember back in the 1990s the first time somebody told me about Amazon.com (NASDAQ:AMZN) he explained it to me as a place where just 5% of the population can go who already know exactly what book they want and don't mind waiting for it to get delivered and without seeing, touching, and feeling. I thought to myself at first, "Cool niche market idea but it will never be that big." Boy was I wrong and now not only is Pier 1 Imports (NYSE:PIR) even selling furniture online - something I couldn't of even dreamed of being a niche back then -- it is arguably on its way to becoming the majority of its business!

On Dec. 18, PIR reported its fiscal third quarter results. Sales were up 4.1% on top of 9.6% last year. Same-store sales were up 2.5% and 3.0% on a constant currency basis. Diluted earnings per share though took a bit of a hit from $0.26 down to $0.20 mostly due to higher overhead especially from its e-Commerce functionality investments. Going forward PIR guided for fiscal 2015 to bring in between $0.95 and $1.05 in EPS along with same-store sales growth of mid to high single digits.

The standout was E-commerce sales. CEO Alex Smith stated,

"E-Commerce sales have grown three-fold over last year, reaching 12% of total sales in the third quarter. Notably, over 60% of our e-Commerce transactions touched the stores during the period."

During the conference call more details were shared. On Cyber Monday over 25% of sales were online. PIR only started selling online just 2.5 years ago in July 2012. Profit margins are higher with online sales. The 60% of e-Commerce transactions that touched stores included about 30% placed while actually in the store and another over 30% were online orders for in-store pickup. No statistics are available about the number of people who start out browsing the website then come into the store later to purchase but the company is seeing it as driving foot traffic. Likewise, the stores are driving people to the website later.

During the Q&A of the same call, Smith pointed out that he likes when customers choose to pick up their orders at the store. He stated, "When those customers come in, clearly we have an opportunity to sell them something in addition to what they've ordered online. So we are very cognizant of that."

My points of all these are threefold:

  • Online/digital ordering isn't hurting PIR - it's enhancing it.
  • Don't fear the talking points about brick and mortar being dead. PIR is knee deep with a distinctive advantage over a non-specialty online marketplace like AMZN.
  • Traditional mom & pop and even smaller regional chains may find themselves less able to compete without the vast variety available through e-Commerce and robust platform such as chains like PIR provide along with the complimentary brick-and-mortar enhancement feeding each channel off one another.

PIR currently trades with a P/E of around 15 using a share price of $15 and the middle of the guidance or $1 per share. The growth and changes to the business along with the hopefully leverage to expand superior highly profitable marginal growth tells me the growth rate in EPS may quite high. With an average P/E in the home furnishing industry of around 18, PIR seems to trade at a bargain for the long term.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.