Steven Cohen (Trades, Portfolio) of Point72 Asset Management purchased a new holding in Pier 1 Imports (PIR, Financial) on Sept. 18, increasing his stake in the chain of home furnishings stores to 4.98%, according to GuruFocus’ Real Time Picks.
Cohen increased his holdings to more than 470,000 shares in September 2013 when Pier 1’s stock rose to one of its highest points at $22.61. The hedge fund manager then sold almost 97% of his stake when the prices began to decrease.
Pier 1 is headquartered in Fort Worth, Texas, and operates more than 1,000 stores in the U.S., Canada and Mexico. The company is the largest specialty retailer in the U.S. of unique home decorating items and gifts imported from around the world. More than half of Pier 1’s products are produced in China, 12.6% in India and 19.5% in Vietnam, Indonesia and the U.S., collectively.
The company’s second-quarter earnings fell 48% due to increased promotional activity and a high level of e-commerce sales, which increased fulfillment costs. In the press release for Pier 1’s second-quarter results, President and CEO Alex Smith said the company will focus on returning base merchandise margins to previous levels through a balancing of full and promotional pricing.
Smith also acknowledged that, while the increased corporate expenses to support growth and development of e-commerce will pressure the company, the new business model will continue to drive growth once it reaches scale.
In its second-quarter earnings report, Pier 1 lowered its earnings-per-share guidance from $1.14-1.22 for 95 million shares, to $0.95-1.05 for 93 million shares. After the earnings were released on Sept. 17, Pier 1’s stock price dropped from $15.54 to $12.66 on Sept. 18.
The company’s debt-to-equity ratio has remained low over the past three years at 0.02. Pier 1 is a cyclical business whose sales tend to increase during the holiday season; therefore, the P/S ratio is valuable to examine. The company’s current P/S ratio is 0.7, which is close to its three-year low of 0.72, a good indicator in Pier 1’s valuation.
The company’s days of inventory have remained steady since 2010, fluctuating between 133 and 135. Its inventory turnover has also changed little since 2008, ranging from 2.63 to 2.84.
Columbia Wanger (Trades, Portfolio) holds more than 5,600,000 shares of Pier 1, or 5.98% of shares outstanding.
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