FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended May 27, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from [ ] to [ ]
Commission File Number 1-7832
PIER 1 IMPORTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1729843
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
301 Commerce Street, Suite 600, Fort Worth, Texas 76102
(Address of principal executive offices, including zip code)
(817) 252-8000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ]. No [ ].
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares outstanding as of June 29, 2000
- ----------------------------- --------------------------------------
Common Stock, $1.00 par value 96,602,047
PART I
------
Item 1. Financial Statements.
--------------------
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
(unaudited)
Three Months Ended
May 27, May 29,
2000 1999
-------- --------
Net sales $299,528 $261,002
Operating costs and expenses:
Cost of sales (including buying and
store occupancy) 172,882 150,919
Selling, general and administrative expenses 89,311 79,353
Depreciation and amortization 10,372 9,277
-------- --------
272,565 239,549
-------- --------
Operating income 26,963 21,453
Nonoperating (income) and expenses:
Interest and investment income (429) (323)
Interest expense 616 1,705
-------- --------
187 1,382
-------- --------
Income before income taxes 26,776 20,071
-------- --------
Provision for income taxes 9,899 7,426
-------- --------
Net income $ 16,877 $ 12,645
======== ========
Earnings per share:
Basic $.17 $.13
==== ====
Diluted $.17 $.13
==== ====
Average shares outstanding during period:
Basic 97,030 96,268
====== =======
Diluted 99,532 105,163
====== =======
The accompanying notes are an integral part of these financial statements.
PIER 1 IMPORTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except per share amounts)
May 27, February 26,
2000 2000
---------- -------------
(unaudited)
ASSETS
Current assets:
Cash, including temporary investments of $24,379
and $39,898, respectively $ 37,269 $ 50,376
Beneficial interest in securitized receivables 49,878 53,820
Accounts receivable, net 6,158 5,637
Inventories 286,031 268,906
Prepaid expenses and other current assets 38,400 36,541
-------- --------
Total current assets 417,736 415,280
Properties, net 205,044 213,032
Other assets 41,981 42,398
-------- --------
$664,761 $670,710
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term
debt $ - $ 39,179
Accounts payable and accrued liabilities 136,685 136,787
-------- --------
Total current liabilities 136,685 175,966
Long-term debt 25,000 25,000
Other non-current liabilities 30,040 29,081
Shareholders' equity:
Common stock, $1.00 par, 500,000,000 shares
authorized, 100,779,000 issued 100,779 100,779
Paid-in capital 140,645 155,711
Retained earnings 278,592 264,678
Cumulative other comprehensive income (2,259) (1,536)
Less - 4,146,000 and 6,949,000 common shares in
treasury, at cost, respectively (44,479) (78,668)
Less - unearned compensation (242) (301)
-------- --------
473,036 440,663
-------- --------
$664,761 $670,710
======== ========
The accompanying notes are an integral part of these financial statements.
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
May 27, May 29,
2000 1999
------- -------
Cash flow from operating activities:
Net income $16,877 $12,645
Adjustments to reconcile to net cash provided by
operating activities:
Depreciation and amortization 10,372 9,277
Deferred taxes and other 3,472 3,143
Changes in cash from:
Inventories (17,125) 10,713
Accounts receivable and other current assets (4,205) 1,315
Accounts payable and accrued expenses 1,419 (10,766)
Other assets, liabilities, and other, net (704) (249)
------- -------
Net cash provided by operating activities 10,106 26,078
------- -------
Cash flow from investing activities:
Capital expenditures (3,906) (14,314)
Proceeds from disposition of properties 194 380
Net cost from disposition of Sunbelt Nursery
Group, Inc. properties - (106)
Beneficial interest in securitized receivables 3,943 3,730
------- -------
Net cash provided by (used in) investing
activities 231 (10,310)
------- -------
Cash flow from financing activities:
Cash dividends (2,963) (2,895)
Purchases of treasury stock (21,828) (10,763)
Proceeds from stock options exercised, stock
purchase plan and other, net 1,362 1,515
Repayments of long-term debt (15) -
Net borrowings under long-term line of credit
agreements - 3,208
------- -------
Net cash used in financing activities (23,444) (8,935)
------- -------
Change in cash and cash equivalents (13,107) 6,833
Cash and cash equivalents at beginning of period 50,376 41,945
------- -------
Cash and cash equivalents at end of period $37,269 $48,778
======= =======
The accompanying notes are an integral part of these financial statements.
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MAY 27, 2000
(in thousands except per share amounts)
(unaudited)
Cumulative
Other Total
Common Paid-in Retained Comprehensive Treasury Unearned Shareholders'
Stock Capital Earnings Income Stock Compensation Equity
-------- -------- -------- ------------- -------- ------------ -------------
Balance, February 26, 2000 $100,779 $155,711 $264,678 ($1,536) ($78,668) ($301) $440,663
--------
Comprehensive income:
Net income 16,877 16,877
Other comprehensive income, net of tax:
Foreign currency translation
adjustments (723) (723)
--------
Comprehensive income 16,154
--------
Purchase of treasury shares (21,828) (21,828)
Restricted stock grant and amortization 59 59
Stock purchase plan, exercise of stock
options and other (553) 2,131 1,578
Cash dividends, declared or paid
($.03 per share) (2,963) (2,963)
Conversion of 5 3/4% convertible debt (14,513) 53,886 39,373
-------- -------- -------- ------- -------- ----- --------
Balance, May 27, 2000 $100,779 $140,645 $278,592 ($2,259) ($44,479) ($242) $473,036
======== ======== ======== ======= ======== ===== ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MAY 27, 2000 AND MAY 29, 1999
(unaudited)
The accompanying unaudited financial statements should be read in
conjunction with the Form 10-K for the year ended February 26, 2000. All
adjustments that are, in the opinion of management, necessary for a fair
statement of the financial position as of May 27, 2000, and the results of
operations and cash flows for the three months ended May 27, 2000 and May 29,
1999 have been made and consist only of normal recurring adjustments. The
results of operations for the three months ended May 27, 2000 and May 29,
1999 are not indicative of results to be expected for the fiscal year because
of, among other things, seasonality factors in the retail business.
Note 1 - Earnings per share
Basic earnings per share amounts were determined by dividing net income
by the weighted average number of common shares outstanding for the period.
Diluted earnings per share amounts were similarly computed, but include the
effect, when dilutive, of the Company's weighted average number of stock
options outstanding and the average number of common shares that would be
issuable upon conversion of the Company's convertible securities. To
determine dilutive earnings, interest and debt issue costs, net of any
applicable taxes, have been added back to net income to reflect assumed
conversions.
The following earnings per share calculations reflect the effect of the
Company's conversion of its 5 3/4% convertible subordinated notes, which were
primarily converted without interest on or before March 23, 2000. See Note 3
of the Notes to Consolidated Financial Statements. Earnings per share for
the three months ended May 27, 2000 and May 29, 1999 are calculated as
follows (in thousands except per share amounts):
Three Months Ended
May 27, May 29,
2000 1999
------- -------
Net income $16,877 $12,645
Assumed conversion of 5 3/4% subordinated notes:
Plus interest and debt issue costs, net of tax - 670
------- -------
Diluted net income $16,877 $13,315
======= =======
Average shares outstanding during period:
Basic 97,030 96,268
Plus assumed exercise of stock options 1,193 649
Plus assumed conversion of 5 3/4%
subordinated notes to common stock 1,309 8,246
------ -------
Diluted 99,532 105,163
====== =======
Earnings per share:
Basic $.17 $.13
==== ====
Diluted $.17 $.13
==== ====
Note 2 - Comprehensive income
The components of comprehensive income, net of related tax, for the
three months ended May 27, 2000 and May 29, 1999 are as follows (in
thousands):
Three Months Ended
May 27, May 29,
2000 1999
------- -------
Net income $16,877 $12,645
Foreign currency translation adjustments (723) 107
------- -------
Comprehensive income $16,154 $12,752
======= =======
Note 3 - Conversion of 5 3/4% convertible subordinated notes
In February 2000, the Company announced its intention to call on March
23, 2000 the $39.2 million outstanding principal amount of its 5 3/4%
convertible subordinated notes due October 1, 2003. The notes were
convertible, without interest, into common stock of the Company at any time
prior to the close of business on March 22, 2000, at a conversion price of
$8.22 per share. The convertible notes were redeemable at the Company's
option, in whole or in part, at any time on or after October 2, 1999 at a
redemption price of 103% of par value, which was scheduled to decline
annually to 100% of par value at the maturity date of October 1, 2002. Prior
to redemption, $39,164,000 of the notes was converted into 4,764,450 shares
of the Company's common stock and $15,000 of the notes was redeemed for cash
at a redemption price of 103% of par value. The conversion and redemption of
these notes reduced the Company's debt by $39.2 million and increased its
equity capitalization by $39.4 million.
PART I
------
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
---------------------------------------------------------------
General
- -------
Pier 1 Imports, Inc. ("the Company") is one of North America's largest
specialty retailers of imported decorative home furnishings, including
furniture, dining and kitchen goods, bath and bedding accessories and other
related items for the home. While the broad categories of merchandise remain
relatively constant, individual products within these categories change
frequently in order to meet customer demand. The Company has over 800 retail
locations in 48 states, Canada, Puerto Rico, the United Kingdom, Mexico and
Japan with merchandise directly imported from nearly 60 countries around the
world.
Results of Operations
- ---------------------
The Company recorded net sales of $299.5 million for the first quarter
of fiscal 2001, a 14.8% increase over the $261.0 million recorded for the
comparable quarter in fiscal 2000. Same-store sales for the first quarter of
fiscal 2001 grew 9.7% over the first quarter of fiscal 2000. The improvement
in same-store sales was primarily the result of positive responses of
customers to the Company's value pricing initiatives that began in the first
quarter of fiscal 2000. Ultimately the value pricing strategy concentrates
on offering merchandise at competitive retail prices without sacrificing
quality, style or gross margin rates. New merchandise offered at these
attractive price points resulted in an increase in customer traffic, a higher
average ticket and an improved conversion ratio for the Company.
Growth in net sales was also attributable to the net increase of 31
North American stores at the end of the first quarter of fiscal 2001 compared
to the end of the first quarter of fiscal 2000. The Company opened five new
stores and closed four stores in North America and opened one store in Mexico
bringing the worldwide store count to 836 at the end of the first quarter.
The North American store count totaled 786 at the fiscal 2001 first quarter-
end.
Net sales on the Company's proprietary credit card totaled $82.2 million
for the first quarter of fiscal 2001, an increase of $12.0 million, or 17.1%,
over the same period of fiscal 2000. During the first quarter of fiscal
2001, proprietary credit card sales accounted for 29.6% of total U.S. store
sales, an increase from 28.8% for the year earlier period. Proprietary
credit card customers spent an average of $159 per transaction for the first
three months of fiscal 2001, compared to $149 per transaction for the same
period a year ago. The Company continues to grow sales on its proprietary
credit card by opening new accounts and enhancing customer loyalty with
marketing promotions targeted to cardholders.
Gross profit, after related buying and store occupancy costs, expressed
as a percentage of sales, improved 10 basis points to 42.3% for the first
quarter of fiscal 2001 compared to 42.2% for the first quarter of fiscal
2000. Merchandise margins, as a percentage of sales, decreased 60 basis
points to 55.9% for the first quarter of fiscal 2001 compared to 56.5% a year
ago. The decline in merchandise margins was principally the result of higher
ocean freight rates, which first began to impact merchandise margins late in
the second quarter of fiscal 2000. The Company negotiated new carrier
contracts near the end of fiscal 2000 that should prevent any further
increases in ocean freight rates for the remainder of fiscal 2001. Store
occupancy costs, as a percentage of sales, decreased 70 basis points to 13.6%
for the first three months of fiscal 2001 from 14.3% for the same period of
fiscal 2000. The improvement in store occupancy expense was primarily due to
the leveraging of relatively fixed rental rates on store leases over a higher
sales base.
Selling, general and administrative expenses, including marketing, were
29.8% of sales for the first quarter of fiscal 2001, a 60 basis point
decrease from the 30.4% of sales for the same period last year. In total
dollars, expenses for the first quarter of fiscal 2001 increased $10.0
million over the first quarter of fiscal 2000. Expenses that normally grow
proportionately with sales and number of stores, such as store compensation,
supplies and marketing, increased $6.6 million, but declined 60 basis points
to 21.2% of sales for the first quarter of this year from 21.8% of sales for
the first quarter of last year, primarily as a result of careful control of
store payroll, resulting in higher productivity. All other selling, general
and administrative expenses increased $3.4 million, yet remained consistent
with the 8.6% of sales of a year ago.
Depreciation and amortization expense for the first quarter of fiscal
2001 was $10.4 million, or 3.5% of sales, compared to $9.3 million, or 3.6%
of sales, for the same period a year earlier. The Company's continued
investment in capital purchases throughout fiscal 2000 resulted in an
increase in depreciation and amortization expense, which was slightly offset
by a decrease due to a sale of certain real estate properties in the third
quarter of last year.
Operating income improved 25.7% to $27.0 million, or 9.0% of sales, for
the first quarter of fiscal 2001, from $21.5 million, or 8.2% of sales, for
the first quarter of fiscal 2000.
During the first quarter of fiscal 2001, net interest expense declined
$1.2 million to $0.2 million from $1.4 million for the comparable period last
year. Interest and investment income increased by $0.1 million as a result
of average higher cash and short-term investment balances. Interest expense
decreased $1.1 million due to the repurchase and subsequent retirement of the
Company's 5 3/4% convertible subordinated notes. Repurchases totaling $28.6
million occurred in the second, third and fourth quarters of fiscal 2000 and
the remaining $39.2 million was converted into common stock in March 2000.
See Note 3 of the Notes to Consolidated Financial Statements.
The Company's effective income tax rate for fiscal 2001 is estimated at
37%, consistent with the first quarter of fiscal 2000.
Net income for the first quarter of fiscal 2001 was $16.9 million,
representing 5.6% of sales or $.17 per share on a diluted basis. Compared to
the first quarter of fiscal 2000, net income increased 33.5% from $12.6
million, or $.13 per share on a diluted basis.
Liquidity and Capital Resources
- -------------------------------
During the first quarter of fiscal 2001, net cash provided by operating
activities was $10.1 million. Net income (adjusted for non-cash and non-
operating related items) of $30.7 million was the primary source of operating
cash flow. Operating cash flow was reduced by $17.1 million during the first
quarter of fiscal 2001 as a result of increases in inventory levels to
support new store openings and expected sales increases over the next few
months. Inventory levels declined by $10.7 million in the first quarter of
last year, partly as a result of intentional reductions in certain categories
to refocus the product mix, and partly as a result of late shipments of some
items. Current year inventory levels are on plan, and will be above last
year's levels to support the expected sales increases for the next two
quarters and the planned opening of 50 new stores prior to the end of the
third quarter. Additionally, an increase in accounts receivable and other
current assets along with other operating activities further reduced
operating cash flow by $4.9 million. Partially offsetting these reductions
in operating cash flow was a $1.4 million increase in accounts payable and
accrued expenses.
Net cash provided by investing activities totaled $0.2 million at the
end of the first quarter. Capital expenditures of $3.9 million were offset
by a decrease in the beneficial interest in securitized receivables of $3.9
million. Proceeds from the disposition of properties equaled $0.2 million
for the first quarter of fiscal 2001.
Financing activities used $23.4 million in cash for the first quarter of
fiscal 2001. The Company spent $21.8 million to repurchase 2,143,500 shares
of its common stock. At the end of the first quarter of fiscal 2001,
slightly more than 2.9 million shares remain authorized for repurchase under
the previously approved Board of Directors program. During the first quarter
of fiscal 2001, the Company paid a dividend to its shareholders of $.03 per
share resulting in a cash outflow of $3.0 million. Other financing
activities, primarily the exercise of stock options, provided cash of $1.4
million.
On March 23, 2000, the Company redeemed its $39.2 million outstanding
principal amount of 5 3/4% convertible subordinated notes previously due
October 1, 2003. The notes were redeemable at a price of 103% of par on
March 23, 2000 or convertible into the Company's common stock at a price of
$8.22 per share. Prior to redemption, $39,164,000 of the notes was converted
into 4,764,450 shares of the Company's common stock and $15,000 of the notes
was redeemed for cash. See Note 3 of the Notes to Consolidated Financial
Statements.
The Company's minimum operating lease commitments remaining for fiscal
2001 are $96.6 million. The present value of total existing minimum
operating lease commitments discounted at 10.0% is $569.3 million. The
Company plans to fund these commitments from operating cash flow.
Working capital requirements are expected to continue to be funded
through cash flow from operations, sales of proprietary credit card
receivables and bank lines of credit. At the end of the first quarter of
fiscal 2001, the Company's financing options consisted of a $125 million
revolving credit facility and other short-term and long-term bank facilities.
The $125 million revolving credit facility, which expires in December 2003,
was fully available at the end of the first quarter. Other short-term (364
days) bank facilities, used principally for the issuance of letters of
credit, totaled $143.3 million, of which $83.1 million was available at the
end of the first quarter. Additionally, a long-term bank facility of $25.6
million was fully utilized at the end of the first quarter of fiscal 2001.
The Company's current ratio was 3.1 to 1 at the end of the first quarter
compared to 2.4 to 1 at the end of fiscal 2000.
In June 2000, the Company declared a cash dividend of $.04 per share
payable on August 30, 2000 to shareholders of record on August 16, 2000. The
Company currently expects to continue to pay cash dividends in fiscal 2001
but to retain most of its future earnings for expansion of the Company's
business.
Additionally in June 2000, the Company launched its e-commerce website
enabling the sale of selected merchandise and gift certificates and
introducing an enhanced Bridal & Gift Registry program. The site also
features an online clearance store. The Company expects to invest $2 to $4
million in further enhancement of this site during fiscal year 2001.
Management believes the funds provided from operations, coupled with the
Company's cash position, available lines of credit and sales of its
proprietary credit card receivables, will be sufficient for the Company's
requirements.
Forward-looking Statements
- --------------------------
Except for historical information contained herein, certain matters
discussed in this quarterly report may constitute "forward-looking
statements" that are subject to certain risks and uncertainties that could
cause actual results to differ materially from those set forth in such
forward-looking statements. The Company may also make forward-looking
statements in other reports filed with the Securities and Exchange Commission
and in material delivered to the Company's shareholders. Forward-looking
statements provide current expectations of future events based on certain
assumptions. These statements encompass information that does not directly
relate to any historical or current fact and often may be identified with
words such as "anticipates," "believes," "expects," "estimates," "intends,"
"plans," "projects" and other similar expressions. Management's expectations
and assumptions regarding planned store openings, financing of Company
obligations from operations and other future results are subject to risks,
uncertainties and other factors that could cause actual results to differ
materially from the anticipated results or other expectations expressed in
the forward-looking statements. Risks and uncertainties that may affect
Company operations and performance include, among others, the general
strength of the economy and levels of consumer disposable income, the
strength of new home construction and sales of existing homes, the ability of
the Company to import merchandise from foreign countries without
significantly restrictive tariffs, duties or quotas and the ability of the
Company to ship items from foreign countries at reasonable rates in timely
fashion. The foregoing risks and uncertainties are in addition to others
discussed elsewhere in this quarterly report. Additional information
concerning these risks and uncertainties is contained in the Company's Annual
Report on Form 10-K for the year ended February 26, 2000, as filed with the
Securities and Exchange Commission.
Impact of Inflation
- -------------------
Inflation has not had a significant impact on the operations of the
Company.
PART II
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Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
The Annual Meeting of Shareholders of the Company was held
June 22, 2000 for the purpose of electing six (6) Directors to
hold office until the next Annual Meeting of Shareholders. The
result of the election follows:
Director Election
-----------------
Director For Withheld
------------------ ---------- ----------
Marvin J. Girouard 74,374,577 10,529,763
John H. Burgoyne 84,148,873 755,467
Michael R. Ferrari 84,214,678 689,662
James M. Hoak, Jr. 84,177,006 727,334
Sally F. McKenzie 84,203,917 700,423
Tom M. Thomas 84,182,068 722,272
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits See Exhibit Index.
(b) Reports on Form 8-K None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PIER 1 IMPORTS, INC. (Registrant)
Date: July 6, 2000 By: /s/ Marvin J. Girouard
------------ -----------------------------------------
Marvin J. Girouard, Chairman of the Board
and Chief Executive Officer
Date: July 6, 2000 By: /s/ Charles H. Turner
------------ -----------------------------------------
Charles H. Turner, Senior Vice President,
Chief Financial Officer and Treasurer
Date: July 6, 2000 By: /s/ Susan E. Barley
------------ -----------------------------------------
Susan E. Barley, Principal Accounting
Officer
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
27 Financial Data Schedule for Three-Month Period ended May 27,
2000.