Novice Investing - Pier One Sunk

Date: Monday 01st 2008f December 2008 05:26:00 PM

Pier One Sunk - 12/15/2005

By: Novice Investing Staff

Specialty retailer, Pier One Imports Inc. (PIR) sunk 14% on news that it will miss sales estimate for the current month. Hope for recovery grew when Pier One increased same store sales for the first time years back in November 2005. CEO Marvin Girouard announced his intention to offer contemporary home furnishings with new breath of life.

Will the company succeed? That is hard to tell. Same store sales has been declining for more than 12 months now (aside from this November 2005). We thought that Pier One might continue the trend, but today's announcement reveals that the first two weeks of December have been slow.

What is needed for Pier One to succeed? One crucial thing is merchandise offering. Pier One seems to offer unappealing merchandise selection on its stores. Perhaps, it should hire outside talents to evaluate its merchandise selection. The second thing it can do is to stop opening new stores ! For the third quarter ending on November 2005, total sales fell two percent while same store sales plunged even lower to 6.5 percent. This indicates that the company is still opening new stores. As you know, opening new stores cost money and customer is rare when a new store opened. If management want to focus on existing stores and not expanding, there is a chance that Pier One will be profitable today.

Opening new stores may not be an answer to achieve profitability. There is a marketing research that says that obtaining a new customer is five times more costly than retaining existing ones. That rings true for retailers when the cost of opening new store is sky high. Krispy Kreme Doughnuts (KKD) was one of the retailer that over expand and get into troubles when same store sales plummet. It can't get enough profitability from opening new stores. In the end, reality sets in and Krispy Kreme now has stopped opening new stores.

Right now, Pier One is in better shape than Krispy Kreme was. It has slightly more cash than long term debt on its balance sheet. However, if sales continues to weaken, Pier One might go the way Krispy Kreme did. For shareholders' sake, we better hope management focus on existing stores rather than opening new ones now rather than later.

END

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Pier One Imports Inc. (PIR) or any other securities.

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