Talk of a border adjustment tax has weighed heavily on the stocks of many retailers and it has hit some retailers harder than others. Enter Pier 1 Imports (PIR 6.66) whose name alone highlights for investors that it would be in the crosshairs of any border adjustment tax. For the time being, however, Pier 1 Imports is going about its business, and last night, the company said its fourth quarter business was better than expected.
Briefly, Pier 1 Imports said it expects fourth quarter adjusted earnings per share to range from $0.32 to $0.34. That is up from its prior guidance of $0.28 to $0.32, which was raised from $0.24 to $0.32 at the time of its third quarter report in December.
The company attributed the increased guidance to improved effectiveness of its promotional and discounting initiatives along with a continuation of supply chain efficiencies that drove significantly higher merchandise margin. It was also helped by better than expected operating expense performance.
Net sales for the period decreased approximately 2.6% year-over-year as the average number of stores declined approximately 3.0%. Comparable sales for the fourth quarter, which include e-commerce sales, increased approximately 0.2%. The retailer's prior guidance called for comparable sales to be down 1% to up 1%.
Pier 1 Imports' e-commerce business continues to grow nicely. Sales for the unit increased 28% in the fourth quarter from a year ago and represented approximately 19.5% of net sales in the fourth quarter compared to approximately 15% of net sales in the fourth quarter of fiscal 2016.
The growth of the e-commerce business is important given the changes taking place in Pier 1 Imports' competitive space, chief among them being the increased competition from online sources such as Amazon.com (AMZN) and Wayfair (W), and a stepped-up e-commerce effort from other traditional retailers.
Shares of PIR are up 5.1% in pre-market action. The response is understandable given the good earnings news that was shared and considering nearly 20% of the stock's float has been sold short. In other words, it stands to reason that the positive guidance might be promoting some short-covering activity.
The good news form the fourth quarter, however, can't chase away the dark cloud of a border adjustment tax that continues to hang over Pier 1 Imports, which stated clearly in its 10K filing for fiscal 2016 that it sold merchandise imported from many different countries, with approximately 58% of its sales derived from merchandise produced in China, 16% in India and 17% collectively in Vietnam, Indonesia and the United States.
Pier 1 Imports is doing a commendable job of managing what it can manage, and if it comes to pass that a border adjustment tax doesn't pass as part of a tax reform plan, then it should find itself in a very good position to benefit from the lifting of the aforementioned border adjustment tax cloud hanging over its stock.
Right now, that is still a big IF, so the good news embedded in its preliminary fourth quarter guidance, which was shared ahead of a presentation at the Raymond James 38th Annual Institutional Investors Conference today, still isn't the best news the retailer's investors could hear.
Pier 1 Imports will report its final fourth quarter results on Wednesday, April 12.