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 26, 1994
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) 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 30, 1994
Common Stock, $1.00 par value 37,729,944
PART I
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Item 1. Financial Statements.
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PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
Nov. 26, Nov. 27, Nov. 26, Nov. 27,
1994 1993 1994 1993
-------- -------- -------- --------
Net sales $165,761 $163,457 $512,650 $503,491
Operating costs and expenses:
Cost of sales (including
buying and store occupancy) 99,664 100,435 310,969 312,945
Selling, general and
administrative expenses 51,146 49,115 151,770 143,448
Depreciation and amortization 4,008 3,980 11,788 11,606
-------- -------- -------- --------
154,818 153,530 474,527 467,999
-------- -------- -------- --------
Operating income 10,943 9,927 38,123 35,492
Interest income 701 392 1,425 1,732
Interest expense (3,453) (4,634) (10,792) (14,562)
Write-down of General Host
securities 7,543 -- 7,543 --
-------- -------- -------- --------
Income before income taxes 648 5,685 21,213 22,662
Provision for income taxes 425 1,643 6,799 6,575
-------- -------- -------- --------
Net income $ 223 $ 4,042 $ 14,414 $ 16,087
======== ======== ======== ========
Earnings per share $.01 $.11 $.38 $.43
==== ==== ==== ====
Average shares outstanding
during period, including
common stock equivalents 37,794 37,676 37,754 37,624
====== ====== ====== ======
The accompanying notes are an integral part of these financial statements.
PIER 1 IMPORTS, INC.
CONSOLIDATED BALANCE SHEET
(In thousands except share data)
(Unaudited)
November 26, February 26,
1994 1994
------------ ------------
ASSETS
Current assets:
Cash, including temporary investments of
$20,632 and $7,466, respectively $ 35,023 $ 17,123
Accounts receivable, net 64,360 51,722
Inventories 211,201 219,646
Other current assets 34,178 32,901
-------- --------
Total current assets 344,762 321,392
Properties, net 108,263 111,510
Other assets 29,419 30,400
-------- --------
$482,444 $463,302
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term
debt $ 15,892 $ 2,639
Accounts payable and accrued liabilities 77,943 89,772
-------- --------
Total current liabilities 93,835 92,411
Long-term debt 142,602 145,231
Deferred income taxes 4,399 3,407
Other non-current liabilities 25,157 21,160
Stockholders' equity:
Common stock, $1.00 par, 100,000,000 shares
authorized, 37,709,000 and 37,617,000
outstanding, respectively 37,709 37,617
Paid-in capital 93,013 92,670
Retained earnings 87,999 76,597
Cumulative translation adjustments (1,063) (964)
Less - 6,000 and 98,000 common shares in
treasury, at cost, respectively (53) (884)
Less - subscriptions receivable and unearned
compensation (1,154) (1,369)
Less - unrealized loss on marketable equity
securities -- (2,574)
-------- --------
216,451 201,093
-------- --------
$482,444 $463,302
======== ========
The accompanying notes are an integral part of these financial statements.
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
November 26, November 27,
1994 1993
------------ ------------
Cash flow from operating activities:
Net income $14,414 $16,087
Adjustments to reconcile to net cash provided
by/(used in) operating activities:
Depreciation and amortization 11,788 11,605
Deferred taxes and other 5,187 2,198
Write-down of General Host securities 7,543 --
Changes in cash from:
Inventories 7,453 (19,045)
Accounts receivable and other current assets (14,513) (17,310)
Accounts payable and accrued expenses (5,652) 1,711
Store-closing reserve (2,144) --
Other assets, liabilities and other, net (923) 1,171
------- -------
Net cash provided by/(used in) operating
activities 23,153 (3,583)
------- -------
Cash flow from investing activities:
Capital expenditures (12,756) (17,388)
Payments for purchases of properties (1,010) (2,342)
Loan to Sunbelt Nursery Group, Inc. (9,600) (1,000)
Proceeds from Sunbelt Nursery Group, Inc. 11,600 2,105
Other investing activities (1,593) (4,259)
------- -------
Net cash used in investing activities (13,359) (22,884)
------- -------
Cash flow from financing activities:
Proceeds from sales of capital stock, treasury
stock, and other 615 440
Cash dividends (3,009) (2,624)
Repayment of long-term debt (2,500) --
Net borrowings/(payments) under line of credit
agreements 13,000 (5,500)
------- -------
Net cash provided by/(used in) financing
activities 8,106 (7,684)
------- -------
Change in cash 17,900 (34,151)
Cash at beginning of period 17,123 73,585
------- -------
Cash at end of period $35,023 $39,434
======= =======
The accompanying notes are an integral part of these financial statements.
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED NOVEMBER 26, 1994
(In thousands)
(Unaudited)
Subscriptions Unrealized Loss
Cumulative Receivable and on Marketable Total
Common Paid-in Retained Translation Treasury Unearned Equity Stockholders'
Stock Capital Earnings Adjustments Stock Compensation Securities Equity
------ ------- -------- ----------- -------- -------------- --------------- -------------
Balance February 26,
1994 $37,617 $92,670 $76,597 $ (964) $ (884) $(1,369) $(2,574) $201,093
Purchase of treasury
stock (743) (743)
Restricted stock
grant and
amortization (2) (61) 215 152
Stock purchase
plan, exercise
of stock options
and other 92 345 (3) 1,635 2,069
Currency translation
adjustments (99) (99)
Unrealized loss on
marketable equity
securities 2,574 2,574
Cash dividends,
declared or paid (3,009) (3,009)
Net income 14,414 14,414
------- ------- ------- ------- ------ ------- ------- --------
Balance November 26,
1994 $37,709 $93,013 $87,999 $(1,063) $ (53) $(1,154) $ -- $216,451
======= ======= ======= ======= ====== ======= ======= ========
The accompanying notes are an integral part of these financial statements.
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying unaudited financial statements should be read in
conjunction with the Annual Report on Form 10-K for the year ended February
26, 1994. All adjustments that are, in the opinion of management, necessary
for a fair statement of the financial position as of November 26, 1994, and
the results of operations and cash flows for the interim periods ended
November 26, 1994 and November 27, 1993 have been made and consist only of
normal recurring adjustments. The results of operations for the three and
nine months ended November 26, 1994 and November 27, 1993 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 - Investment in General Host Corporation common stock
At the beginning of fiscal 1995, the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" (SFAS 115). The adoption of this standard by
the Company had no effect on the Company's financial position or results of
operations for the first nine months of fiscal 1995.
In November 1994, the Company concluded that the decline in the market
value of its investment in General Host Corporation ("General Host") common
stock was other than temporary. Accordingly, the Company recorded a special
non-cash pre-tax charge of $7.5 million to reflect a write-down to the then
current market value of the General Host stock. At November 26, 1994, the
market value of the General Host common stock was substantially the same as
the Company's new adjusted cost of $8.4 million.
PART I
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Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations.
-----------------------------------
RESULTS OF OPERATIONS
Pier 1 Imports, Inc. ("the Company") recorded net sales of $165.8
million and $512.7 million for the third quarter and nine-month periods of
fiscal year 1995, increases of 1.4% and 1.8%, respectively, compared to the
same periods of fiscal 1994. Reported sales for the current fiscal year do
not include sales from 49 stores that are scheduled to close under the store-
closing program, which was established at the end of fiscal 1994. Same-store
sales for the third quarter and first nine months of fiscal 1995 both
increased 3.3% compared to the same periods of fiscal 1994. The increase in
same-store sales during the first nine months of fiscal 1995 resulted from a
10.8% sales increase in hard goods merchandise, such as furniture and
decorative accessories, coupled with a 23.2% sales decrease in soft goods
merchandise which includes clothing, jewelry, and accessories. Hard goods
and soft goods sales contributed approximately 90% and 10%, respectively, of
total sales for the first nine months of fiscal 1995. The Company closed 21
of the 49 stores included in the store-closing program and opened 38 through
the third quarter of fiscal 1995. Store count aggregated 624 at the end of
the third quarter of fiscal 1995 compared to 637 at the end of the third
quarter of fiscal 1994.
Gross profit, after related buying and store occupancy costs, expressed
as a percentage of net sales, increased 130 basis points to 39.9% for the
third quarter of fiscal 1995 and increased 150 basis points to 39.3% for the
first nine months of fiscal 1995 compared to the same periods in fiscal 1994.
These increases are primarily the result of a continued improvement in
margins on furniture this fiscal year in addition to fewer clearance
markdowns taken on clothing this fiscal year compared to last fiscal year.
Store occupancy costs, as a percentage of net sales, improved 80 basis points
to 15.5% for the third quarter and to 14.8% for the first nine months of
fiscal 1995 versus last fiscal year's comparable periods. This improvement
was achieved through the elimination of the results of underperforming stores
in the store-closing program.
Selling, general, and administrative expenses, expressed as a percentage
of net sales, increased 90 basis points to 30.9% in the third quarter of
fiscal 1995 and 110 basis points to 29.6% in the first nine months of fiscal
1995 compared to the same periods in fiscal 1994. In total dollars, expenses
increased $2.0 million during the third quarter of fiscal 1995 over the same
period in fiscal 1994 and increased $8.3 million during the first nine months
of the current fiscal year compared to the same period last fiscal year.
Fiscal 1995 third quarter expenses increased due to higher management bonus
accruals and increased marketing costs. Expenses in the fiscal 1995 nine-
month period increased as a result of these costs offset partially by lower
net credit card expenses and the elimination of the expenses of stores in the
store-closing program.
Interest expense declined $1.2 million and $3.8 million for the third
quarter and the first nine months of fiscal 1995, respectively, compared to
the same periods of fiscal 1994. These decreases are primarily attributable
to lower effective rates.
At the beginning of fiscal 1995, the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" (SFAS 115). The adoption of this standard by
the Company had no effect on the Company's financial position or results of
operations for the first nine months of fiscal 1995. In November 1994, the
Company concluded that the decline in the market value of its investment in
General Host Corporation ("General Host") common stock was other than
temporary. Accordingly, the Company recorded a special non-cash pre-tax
charge of $7.5 million to reflect a write-down to the then current market
value of the General Host stock. The Company concluded that it would be
unable to recover all of its initial investment in General Host after several
favorable developments relating to General Host failed to have a positive
impact on the market price of General Host common stock after passage of a
reasonable period of time. The favorable developments relating to General
Host included a store closing and cost reduction program, a change in the
senior management of a major subsidiary of General Host, the sale in October
1994 by General Host of its 49.5% interest in Sunbelt Nursery Group, Inc.
("Sunbelt") to a third party for $4.2 million in cash and substantial
improvement in current year first and second quarter results.
The Company's effective tax rate for the nine-month period of fiscal
1995 was 32.1% compared to 29.0% for the same period of fiscal 1994. The
increase is primarily due to the benefit of tax-favored investment income
last fiscal year compared to this fiscal year. The Company expects that its
effective tax rate for the 1996 fiscal year will approximate 36%.
Operating income improved $1.0 million to $10.9 million during the
fiscal 1995 third quarter and improved $2.6 million to $38.1 million for the
nine-month period of fiscal 1995 compared to the same periods in fiscal 1994
due to slightly higher sales and improved margins. Before the special
charge, net income aggregated $5.7 million or $0.15 per share for the third
quarter of fiscal 1995 compared to $4.0 million or $0.11 per share for the
fiscal 1994 third quarter. After the special charge in the third quarter of
fiscal 1995, net income aggregated $223,000 or $0.01 per share. For the
nine-month period of fiscal 1995, net income after the special charge
aggregated $14.4 million or $0.38 per share compared to $16.1 million or
$0.43 per share for the same period of fiscal 1994.
On December 31, 1994, the U.S. Trade Representative (USTR) announced his
intention to take retaliatory trade action against the People's Republic of
China (P.R.C.) if it does not agree to address U.S. concerns about the
P.R.C.'s lack of intellectual property rights and remedies by the P.R.C. The
USTR issued a list of P.R.C. products whose tariff could be significantly
raised if the U.S. and the P.R.C. cannot resolve their differences by
February 4, 1995, the announced deadline of the current unfair trade practice
investigation initiated pursuant to Section 301 of the 1988 Omnibus Trade and
Competitiveness Act. The proposed list of goods scheduled for duty increases
includes a number of goods imported by the Company from the P.R.C. At this
time, it is not known which items would be included on such a list if it were
to be implemented, as the USTR will receive comments to the list during the
month of January with the announced date to finalize the list being February
4, 1995. Presently, the only action contemplated by the Company will be to
file its objections to the list of goods imported by the Company from the
P.R.C. that are not available in the U.S. in commercially reasonable
quantities. Representatives of the U.S. and P.R.C. are expected to meet
before February 4, 1995, to attempt to resolve the intellectual property
issues. While the outcome of these discussions cannot be predicted,
previously in 1992 the countries resolved trade barrier disagreements by a
Memorandum of Understanding which precluded the implementation of a list of
similarly sanctioned goods.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $23.2 million during the first
nine months of fiscal 1995 compared to a $3.6 million use of cash from
operations during the comparable period in fiscal 1994. This increase was
largely due to reduced inventory levels in fiscal 1995 coupled with a slower
growth of the Pier 1 credit card receivable during the first nine months of
fiscal 1995 versus the same period of fiscal 1994. Cash used in investing
activities was $13.4 million during the first nine months of fiscal 1995
compared to $22.9 million for the same period of fiscal 1994. The decline in
the use of cash during fiscal 1995 is primarily due to a decrease in capital
expenditures and a reduction in other investing activities. Cash provided by
financing activities of $8.1 million for the current fiscal year included $13
million of short-term borrowings offset partially by $3.0 million of cash
dividends paid this fiscal year and a $2.5 million sinking fund payment on
long-term debt in the second quarter of fiscal 1995. Cash used in financing
activities for the first nine months of fiscal 1994 included a $5.5 million
net pay-down of short-term debt.
During the first nine months of fiscal 1995, the Company paid cash
dividends aggregating $0.08 per share, and has declared a cash dividend of
$0.03 per share payable on February 22, 1995 to shareholders of record on
February 8, 1995. The Company currently expects to continue paying modest
cash dividends in fiscal 1996 and intends to retain most of its future
earnings for expansion of the Company's business.
Cash requirements of the store-closing program are estimated to
aggregate $16 million in fiscal 1995 and will be funded through working
capital and operations. Forty-nine (49) stores and the Canadian distribution
center and administrative office are planned to close through the store-
closing program during fiscal 1995, of which 21 stores have been closed and
charged to the store-closing reserve. The remaining balance of the $21.3
million reserve was $15.9 million at November 26, 1994 which consisted of
$14.5 million of lease termination costs, $1.0 million of interim operating
losses and $0.4 million of severance and relocation costs. The components of
the $5.4 million usage of the store-closing provision during the first nine
months of fiscal 1995 consist of lease termination costs of $1.4 million,
fixed asset write-downs of $2.1 million, interim operating losses of $0.7
million and inventory liquidation costs of $1.2 million. All of the
remaining stores will either be closed or have substantially completed
negotiations with landlords regarding lease settlements by the end of fiscal
1995. A total of 50 new stores are planned for the 1995 fiscal year, of
which 38 stores were opened during the first nine months of fiscal 1995.
Financing for new store land and building costs will be provided by operating
leases. Related inventory and fixtures for the remaining stores are
estimated to cost approximately $3.4 million, which will be funded by
operations, working capital and bank lines of credit.
The minimum operating lease commitments for fiscal 1995 are $23 million,
and the present value of all existing minimum operating lease commitments is
$349 million.
Working capital requirements will continue to be provided by cash and
$168.5 million in short-term revolving lines of credit at November 26, 1994.
Under these lines of credit, $13 million was outstanding in the form of
short-term borrowings and an additional $53 million was committed under
letters of credit. The Company's current ratio at the end of the third
quarter of fiscal 1995 was 3.7 to 1 compared to 3.5 to 1 at fiscal year end
1994 and 3.7 to 1 at the end of the third quarter of fiscal 1994.
In April 1993, the Company sold its 49.5% interest in Sunbelt to General
Host in exchange for 1,940,000 shares of General Host common stock.
Subsequently, General Host paid a 5% stock dividend, resulting in the
Company's holding 2,037,000 shares of General Host common stock. In
connection with the sale, the Company had committed to provide Sunbelt up to
$25 million of non-revolving store development financing and to provide
Sunbelt a credit facility aggregating $12 million. In October 1994, in
connection with the sale by General Host of its 49.5% interest in Sunbelt to
a third party, the Company agreed to extend $22.8 million of the non-
revolving store development financing to Sunbelt until June 30, 1998, at
market rental rates, and the Company received payment of the amounts owed
under the credit facility. Additionally, the Company guarantees
approximately $3.5 million of other Sunbelt store lease obligations.
In December 1994, the Company completed a private placement of $12.5
million principal amount of 8 1/2% exchangeable debentures due December 1,
2000, providing for mandatory exchange of the debentures into an aggregate of
2,037,000 shares of General Host common stock held by the Company. The net
proceeds received by the Company from the sale of the exchangeable debentures
was approximately $11 million. The Company intends to utilize the net
proceeds, together with existing financial resources, for working capital and
other general corporate purposes.
PART II
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Item 2. Change in Securities.
--------------------
The Board of Directors amended the Company's bylaws to eliminate shareholder
capability to call a special meeting of shareholders and to provide authority
of the Board of Directors to set, and require notice to be given to the Board
to request, the record date for any action proposed to be taken by the
written consent of shareholders.
On December 9, 1994, the Board of Directors announced a dividend of one
common share purchase right payable on each share of the Company's common
stock outstanding on December 21, 1994, pursuant to a Rights Agreement
between the Company and First Interstate Bank of Texas, N.A., as rights
agent. For a summary of the rights, see the Company's form 8-A registering
the rights, as filed with the Securities and Exchange Commission on December
20, 1994.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits See Exhibit Index.
(b) Reports on Form 8-K
On December 1, 1994, the Company filed a Current Report on Form 8-K,
reporting a one-time non-cash pre-tax charge of approximately $7.5
million to write down the Company's carrying costs of its holdings of
General Host common stock, and reporting the offering of a private
placement of 8 1/2% exchangeable debentures; exchangeable at maturity
into 2,037,000 shares of the common stock of General Host Corporation
held by the Company.
On January 5, 1995, the Company filed a Current Report on Form 8-K,
reporting the issuance of common share purchase rights, payable on
shares of common stock outstanding on December 21, 1994.
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 10, 1995 By: /s/ Clark A. Johnson
---------------- ----------------------------------------
Clark A. Johnson, Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Date: January 10, 1995 /s/ Robert G. Herndon
---------------- ----------------------------------------
Robert G. Herndon, Executive Vice
President and Chief Financial Officer
(Principal Financial Officer)
Date: January 10, 1995 /s/ Susan E. Barley
---------------- ----------------------------------------
Susan E. Barley, Vice President and
Controller
(Principal Accounting Officer)
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
3(ii) Bylaws of the Company, Restated as of December 7, 1994
4 Rights Agreement, dated as of December 9, 1994, between the
Company and First Interstate Bank, N.A., as rights agent,
incorporated by reference to Exhibit 4 to the Company's
Registration Statement on Form 8-A, Reg. No. 1-7832, filed
December 20, 1994.
27 Financial Data Schedule for Nine-month Period