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 November 27, 1993
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 No.)
301 Commerce Street, Suite 600, Fort Worth, Texas 76102
(Address of principal executive offices) (Zip code)
(817) 878-8000
(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 December 20, 1993
Common Stock, $1.00 par value 37,530,028
PART I
Item 1. Financial Statements.
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
Nov. 27, Nov. 28, Nov. 27, Nov. 28,
1993 1992 1993 1992
-------- ------- -------- -------
Net sales $163,457 $144,923 $503,491 $463,422
Operating costs and expenses:
Cost of sales (including
buying and store occupancy) 100,435 88,268 312,945 285,486
Selling, general and
administrative expenses 49,115 43,982 143,448 132,063
Depreciation and amortization 3,980 3,551 11,606 10,760
-------- ------- -------- --------
153,530 135,801 467,999 428,309
-------- -------- -------- --------
Operating income 9,927 9,122 35,492 35,113
Interest expense, net 4,242 4,330 12,830 11,997
-------- -------- -------- --------
Income before income taxes and
equity in net income (loss)
of subsidiary 5,685 4,792 22,662 23,116
Provision for income taxes 1,643 1,146 6,575 5,545
-------- -------- -------- --------
Income before equity in net
income (loss) of subsidiary 4,042 3,646 16,087 17,571
Equity in net income (loss) of
subsidiary -- (1,399) -- 184
-------- -------- -------- --------
Net income $ 4,042 $ 2,247 $ 16,087 $ 17,755
======== ======== ======== ========
Earnings per common share $.11 $.06 $.43 $.48
==== ==== ==== ====
Average shares outstanding during
period, including common stock
equivalents 37,676 37,364 37,624 37,268
====== ====== ====== ======
<FN>
The accompanying notes are an integral part of these financial statements.
/TABLE
PIER 1 IMPORTS, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands except share data)
(Unaudited)
November 27, February 27,
1993 1993
------------ ------------
ASSETS
Current assets:
Cash, including temporary investments of
$25,454 at November 27, 1993 and $66,823
at February 27, 1993 $ 39,434 $ 73,585
Accounts receivable, net 51,950 34,920
Inventories 208,638 189,593
Other current assets 22,417 20,038
-------- --------
Total current assets 322,439 318,136
Property and equipment, net 111,819 108,011
Other assets 36,376 34,350
-------- --------
$470,634 $460,497
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of capital leases $ 27,639 $ 33,139
Accounts payable and accrued liabilities 60,130 59,791
-------- --------
Total current liabilities 87,769 92,930
Long-term debt 147,670 147,246
Deferred income taxes 404 514
Other non-current liabilities 20,565 19,313
Stockholders' equity:
Common stock, $1.00 par, 100,000,000 shares
authorized, 37,617,000 and 37,607,000
outstanding, respectively 37,617 37,607
Paid-in capital 92,787 93,184
Retained earnings 87,687 74,413
Cumulative translation adjustments (822) (433)
Less - 125,000 and 263,000 common shares in
treasury, at cost, respectively (1,266) (2,599)
Less - subscriptions receivable and unearned
compensation (1,777) (1,678)
-------- --------
214,226 200,494
-------- --------
$470,634 $460,497
======== ========
<FN>
The accompanying notes are an integral part of these financial statements.
/TABLE
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
Nov. 27, Nov. 28,
1993 1992
-------- --------
Cash flow from operating activities:
Net income $16,087 $17,755
Adjustments to reconcile to net cash (used in)
provided by operating activities:
Depreciation and amortization 11,605 10,760
Deferred taxes and other 3,303 (141)
Equity in undistributed earnings of subsidiary -- (184)
Changes in cash from:
Inventories (19,045) 3,419
Accounts receivable and other current assets (17,310) (7,293)
Accounts payable and accrued expenses 1,711 4,425
Other assets, liabilities and other, net 1,171 633
------- -------
Net cash (used in) provided by operating activities (2,478) 29,374
-------- -------
Cash flow from investing activities:
Capital expenditures (17,388) (8,429)
(Payments) proceeds from the (acquisition)
disposition of properties (2,342) 1,077
Other investing activities (4,259) (1,636)
------- -------
Net cash used in investing activities (23,989) (8,988)
Cash flow from financing activities:
Proceeds from sales of capital stock, treasury stock,
and other 440 2,424
Cash dividends (2,624) (1,662)
Proceeds from issuance of long-term debt,
net of repayments -- 37,101
Net borrowings (payments) under line of credit agreements (5,500) 9,983
------- -------
Net cash (used in) provided by financing activities (7,684) 47,846
------- -------
Change in cash (34,151) 68,232
Cash at beginning of year 73,585 9,001
------- -------
Cash at end of period $39,434 $77,233
======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
/TABLE
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED November 27, 1993
(In thousands)
(Unaudited)
Subscriptions
Cumulative Receivable and
Common Paid-in Retained Translation Treasury Unearned
Stock Capital Earnings Adjustments Stock Compensation
------ ------- -------- ----------- -------- --------------
Balance
February 27,
1993 $37,607 $93,184 $74,413 $(433) $(2,599) $(1,678)
Restricted
stock
grant and
amortization (66) 376 (99)
Stock purchase
plan,
exercise
of stock
options and
other 10 (331) (189) 957
Currency
translation
adjustments (389)
Cash dividends (2,624)
Net income 16,087
------- ------- ------- ----- ------- -------
Balance
November 27,
1993 $37,617 $92,787 $87,687 $(822) $(1,266) $(1,777)
======= ======= ======= ===== ======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
/TABLE
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED
NOVEMBER 27, 1993 AND NOVEMBER 28, 1992
(Unaudited)
The accompanying unaudited financial statements should be read in
conjunction with the Annual Report on Form 10-K for the year ended February 27,
1993. All adjustments that are, in the opinion of management, necessary for a
fair statement of the financial position as of November 27, 1993, and the
results of operations and cash flows for the interim periods ended November 27,
1993 and November 28, 1992 have been made and consist only of normal recurring
adjustments. The results of operations for the three and nine months ended
November 27, 1993 and November 28, 1992 are not indicative of results to be
expected for the fiscal year because of, among other things, seasonality factors
in the retail business.
PART I
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
Pier 1 Imports, Inc. ("the Company") had a net sales increase of 12.8% to
$163.5 million and 8.6% to $503.5 million for the third quarter and nine-month
periods of the 1994 fiscal year compared to the same periods last year.
Comparable store sales improved 8.6% during the third quarter and 5.1% for the
first nine months of fiscal 1994. At November 27, 1993, the Company operated
637 stores in 47 states, Puerto Rico, Canada and has investments in operations
in England and Mexico.
Gross profit, after related buying and store occupancy costs, as a
percentage of sales, were 38.6% for the third quarter and 37.8% for the first
nine months in fiscal 1994 compared to 39.1% and 38.4% for the same periods last
year. These 0.5% and 0.6% decreases from last year's third quarter and the
first nine months of fiscal 1993, respectively, were primarily a result of a
change in the sales mix with more furniture and less clothing sales compared
with the prior periods, as well as, increases in clearance markdowns taken on
clothing over the prior periods. Store occupancy costs, as a percentage of
sales, improved 0.9% for the quarter and 0.5% for the first nine months of
fiscal 1994 versus last year's comparable periods.
Selling, general, and administrative expenses, as a percentage of sales,
for the third quarter of fiscal 1994 improved slightly to 30.0% from 30.3%
during the same period last year. In total dollars, selling, general and
administrative expenses during the third quarter of fiscal 1994 increased $5.1
million compared to a year ago. These increased expenses were primarily due to
higher payroll and other store-related costs associated with new store growth
(31 net new stores since November 28, 1992), new point-of-sale equipment leased
for the stores, offset partially by lower marketing expenses. Selling,
general, and administrative expenses for the first nine months of the fiscal
year were up $11.4 million but unchanged as a percentage of sales compared to
the same period last year.
Net interest expense of $4.2 million for the third quarter and $12.8
million for the nine-month period ended November 27, 1993 decreased $0.1 million
and increased $0.8 million, respectively, compared to the same periods last
year. The increase resulted from lower interest income earned on reduced cash
balances this year compared to last year.
The Company's effective tax rate for the nine-month period ended November
27, 1993 increased to 29% compared to 24% for the same period last year,
primarily due to an increase in the state tax effective rate.
Operating income improved $0.8 million to $9.9 million during the third
quarter of fiscal 1994 compared to $9.1 million for the same period last year.
Net income of $4.0 million or $0.11 per share for the third quarter this year
was above last year's third quarter net income of $2.2 million or $0.06 per
share primarily due to the Company's $1.4 million equity in the fiscal 1993
losses of the former, partially-owned subsidiary Sunbelt Nursery Group, Inc.
("Sunbelt"). Net income for the first nine months of fiscal year 1994 was $16.1
million or $0.43 per share compared to $17.8 million or $0.48 per share for the
same period last year.
Pursuant to the sale of its 49.5% ownership interest in Sunbelt to General
Host Corporation ("General Host") effective April 2, 1993, the Company agreed
to make available up to $25 million of properties for lease to Sunbelt through
April 28, 1996 and provide Sunbelt a $12 million credit facility either in
guarantees of Sunbelt indebtedness or direct loans until April 28, 1994.
Sunbelt's repayment obligations under this agreement are secured by General
Host's pledge of 4.2 million shares of Sunbelt common stock. As of November 27,
1993, approximately $23 million of the properties' facility and $12 million of
the credit facility were outstanding. In its latest Form 10-Q filed with the
Securities and Exchange Commission, Sunbelt reported losses from operations
through the three- and nine-month periods ended October 31, 1993 of $5.4 million
and $2.6 million, respectively, and cash flow from operations of $2.2 million
for the nine months ended October 31, 1993. Additionally, Sunbelt reported that
in the event additional lines of credit or guarantees are not obtained from
commercial banks, General Host or the Company, Sunbelt may be required to close
stores, liquidate inventories or take other unspecified measures to meet working
capital needs, and that there can be no assurance that these measures would
provide sufficient liquidity to satisfy those working capital needs. The
Company and General Host have discussed Sunbelt's future business prospects and
its ability to obtain future financing. Present discussions with General Host
have not progressed sufficiently for the Company to determine a course of action
it may take based on Sunbelt's financial position or the impact, if any, on the
Company's results of operations.
Liquidity and Capital Resources
The Company's current ratio improved to 3.7 to 1 at November 27, 1993 over
the 3.4 to 1 ratio at February 27, 1993 and November 28, 1992. Additionally,
the Company's total debt to equity improved to 0.82 to 1 at November 27, 1993,
from 0.90 to 1 ratio at fiscal 1993 year-end and the 0.92 to 1 ratio at November
28, 1992. The Company's cash flow from operating activities decreased $2.5
million during the first nine months of fiscal 1994 compared to an increase of
$29.4 million for the same period of fiscal 1993. Uses of cash included $19.0
million of inventory increases to support new stores and anticipated sales
gains, and a $17.3 million increase in accounts receivable and other current
assets primarily as a result of strong sales on the Pier 1 Preferred Card, the
Company's proprietary credit card. Other uses of cash include capital
expenditures of $17.4 million, net pay-down of short-term borrowings of $5.5
million, and expenditures of $3.0 million to purchase six franchise locations.
For the first nine months of fiscal 1994, the Company paid cash dividends
aggregating $0.07, and has declared a dividend of $0.025 per share payable on
February 17, 1994. The Company currently expects to continue paying modest
cash dividends, but intends to retain most of its future earnings for expansion
of the Company's business.
The Company opened 42 new stores and closed 10 stores during the first
nine months of fiscal 1994 and expects to open 3 additional stores prior to the
end of fiscal 1994. New store openings in fiscal 1994 are funded through
operating leases with inventory and fixtures for the new store development of
approximately $11 million funded by working capital, operations, and bank lines
of credit. The minimum future operating lease commitments for fiscal 1994 are
$91 million with total minimum future operating lease commitments of
approximately $712 million. Current and future operating leases are expected
to be funded by cash flow from operations.
During the last quarter of fiscal 1994 and during fiscal 1995, the
Company's sources of funds will be operations and bank revolving credit
facilities. The Company has two committed bank revolving lines of credit
aggregating to $30 million as well as other short-term revolving credit and
letter of credit facilities amounting to $134.5 million, for a total of $164.5
million. At November 27, 1993, $27.5 million was outstanding as short-term
borrowings and an additional $65.3 million was used to support letters of
credit. In the opinion of Company management, these facilities will be adequate
to provide financial flexibility for expansion and seasonal working capital
requirements for the foreseeable future.
PART II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits None.
(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: January 7, 1994 By: /s/ Clark A. Johnson
---------------------------------------
Clark A. Johnson, Chairman of the Board
and Chief Executive Officer
Date: January 7, 1994 /s/ Robert G. Herndon
----------------------------------------
Robert G. Herndon, Executive Vice
President and Chief Financial Officer
Date: January 7, 1994 /s/ Charles H. Turner
----------------------------------------
Charles H. Turner, Controller and
Principal Accounting Officer