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 31, 1997
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 July 3, 1997
- ----------------------------- -------------------------------------
Common Stock, $1.00 par value 45,074,660
PART I
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Item 1. Financial Statements.
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PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
Three Months Ended
May 31, June 1,
1997 1996
--------- --------
Net sales $229,243 $205,292
Operating costs and expenses:
Cost of sales (including buying and
store occupancy) 130,087 123,595
Selling, general and administrative expenses 70,938 60,546
Depreciation and amortization 5,415 4,775
-------- --------
206,440 188,916
-------- --------
Operating income 22,803 16,376
Nonoperating (income) and expense:
Interest and investment income (294) (1,661)
Interest expense 2,027 4,253
-------- --------
1,733 2,592
-------- --------
Income before income taxes 21,070 13,784
Provision for income taxes 8,431 5,511
-------- --------
Net income $ 12,639 $ 8,273
======== ========
Net income per share:*
Primary $.18 $.14
==== ====
Fully diluted $.18 $.13
==== ====
Average shares outstanding during period,
including common stock equivalents:*
Primary 68,430 60,229
====== ======
Fully diluted 75,494 68,518
====== ======
* Adjusted to reflect a three for two stock split effected in the form of a
stock dividend.
The accompanying notes are an integral part of these financial statements.
PIER 1 IMPORTS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
(Unaudited)
May 31, March 1,
1997 1997
-------- ---------
ASSETS
Current assets:
Cash, including temporary investments of
$18,743 and $22,188, respectively $ 30,867 $ 32,280
Accounts receivable, net 4,498 4,128
Inventories 220,796 220,013
Prepaid expenses and other current assets 71,211 66,097
-------- --------
Total current assets 327,372 322,518
Properties, net 221,115 216,836
Other assets 31,678 30,914
-------- --------
$580,165 $570,268
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term
debt $ 1,651 $ 1,641
Accounts payable and accrued liabilities 104,318 105,541
-------- --------
Total current liabilities 105,969 107,182
Long-term debt 114,494 114,454
Other non-current liabilities 25,593 25,584
Stockholders' equity:
Common stock, $1.00 par, 200,000,000 shares
authorized, 45,361,000 issued 45,361 45,361
Paid-in capital 166,372 166,475
Retained earnings 129,558 118,721
Cumulative currency translation adjustments (1,400) (1,385)
Less - 345,000 and 373,000 common shares in
treasury, at cost, respectively (5,182) (5,437)
Less - unearned compensation (600) (687)
-------- --------
334,109 323,048
-------- --------
$580,165 $570,268
======== ========
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 31, June 1,
1997 1996
------- --------
Cash flow from operating activities:
Net income $12,639 $ 8,273
Adjustments to reconcile to net cash provided by
operating activities:
Depreciation and amortization 5,415 4,775
Deferred taxes and other 734 757
Investment gain -- (1,607)
Change in cash from:
Inventories (783) 5,328
Accounts receivable and other current assets (2,600) (8,499)
Accounts payable and accrued expenses (1,205) 383
Other assets, liabilities, and other, net (941) 2,270
------- -------
Net cash provided by operating activities 13,259 11,680
------- -------
Cash flow from investing activities:
Capital expenditures (9,550) (9,147)
Proceeds from disposition of properties 509 106
Cost of Sunbelt Nursery Group, Inc. properties (13) (1,010)
Beneficial interest in securitized receivables (2,935) --
Proceeds from investments -- 4,665
Acquisition of national bank charter (943) --
------- -------
Net cash used in investing activities (12,932) (5,386)
------- -------
Cash flow from financing activities:
Cash dividends (1,802) (1,587)
Net payments under line of credit agreements -- (1,802)
Proceeds (payments) from sales (purchases) of
capital stock, treasury stock, and other, net 62 1,082
------- -------
Net cash used in financing activities (1,740) (2,307)
------- -------
Change in cash and cash equivalents (1,413) 3,987
Cash and cash equivalents at beginning of period 32,280 13,534
------- -------
Cash and cash equivalents at end of period $30,867 $17,521
======= =======
The accompanying notes are an integral part of these financial statements.
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MAY 31, 1997
(In thousands)
(Unaudited)
Cumulative
Currency Total
Common Paid-in Retained Translation Treasury Unearned Stockholders'
Stock Capital Earnings Adjustments Stock Compensation Equity
------- -------- -------- ----------- ---------------------- -------------
Balance, March 1, 1997 $45,361 $166,475 $118,721 ($1,385) ($5,437) ($687) $323,048
Purchases of treasury stock (1,662) (1,662)
Restricted stock grant and amortization 87 87
Stock purchase plan, exercise of stock
options and other (103) 1,917 1,814
Currency translation adjustments (15) (15)
Cash dividends, declared or paid ($.04
per share) (1,802) (1,802)
Net income 12,639 12,639
------- -------- -------- ------- ------- ----- --------
Balance, May 31, 1997 $45,361 $166,372 $129,558 ($1,400) ($5,182) ($600) $334,109
======= ======== ======== ======= ======= ===== ========
<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 31, 1997 AND JUNE 1, 1996
(Unaudited)
The accompanying unaudited financial statements should be read in
conjunction with the Form 10-K for the year ended March 1, 1997. All
adjustments that are, in the opinion of management, necessary for a fair
statement of the financial position as of May 31, 1997, and the results of
operations and cash flows for the three months ended May 31, 1997 and June 1,
1996 have been made and consist only of normal recurring adjustments. The
results of operations for the three months ended May 31, 1997 and June 1,
1996 are not indicative of results to be expected for the fiscal year because
of, among other things, seasonality factors in the retail business. The
classification of certain amounts previously reported in the statement of
financial position as of March 1, 1997 have been modified to conform with the
May 31, 1997 method of presentation.
Note 1 - Net income per share
Primary net income per share was determined by dividing net income by
applicable average shares outstanding. Fully diluted net income per share
amounts are similarly computed, but include the effect, when dilutive, of the
Company's potentially dilutive securities. To determine fully dilutive net
income, interest and debt issue costs, net of any applicable taxes, have been
added back to net income to reflect assumed conversions.
Primary average shares include common shares outstanding and common
stock equivalents attributable to outstanding stock options. In addition to
common and common equivalent shares, fully diluted average shares include
common shares that would be issuable upon conversion of the Company's
convertible securities.
Net income per share for the three months ended May 31, 1997 and June
1, 1996 (adjusted for the stock split effected in the form of a stock
dividend) are calculated as follows:
Three Months Ended
May 31, June 1,
1997 1996
------- -------
(in thousands except per share amounts)
Net income $12,639 $ 8,273
Assumed conversion of 6 7/8% subordinated
notes:
Plus interest and debt issue costs,
net of tax -- 681
Assumed conversion of 5 3/4% subordinated
notes:
Plus interest and debt issue costs,
net of tax 811 --
------- -------
Fully diluted net income $13,450 $ 8,954
======= =======
Average shares outstanding during period,
including common stock equivalents:
Primary 68,430 60,229
Plus assumed exercise of stock options 70 53
Plus assumed conversion of 6 7/8%
subordinated notes to common stock -- 8,236
Plus assumed conversion of 5 3/4%
subordinated notes to common stock 6,994 --
------ ------
Fully diluted 75,494 68,518
====== ======
Net income per share:
Primary $.18 $.14
==== ====
Fully diluted $.18 $.13
==== ====
Note 2 - Impact of new accounting standard
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." SFAS No. 128 requires dual presentation of net income per share on
the face of all income statements issued after December 31, 1997 for all
entities with complex capital structures. At that time the Company will be
required to change the method currently used to compute net income per share
and to restate net income per share for all prior periods. The impact of
SFAS No. 128 on primary and fully diluted net income per share amounts for
the first quarter ended May 31, 1997 and June 1, 1996 is not expected to be
material.
Note 3 - Subsequent event - three for two stock split
In June 1997, the Company announced a three for two stock split of its
common shares distributable to stockholders of record on July 16, 1997. The
stock split will be effected in the form of a 50% stock dividend. The new
shares will be distributed on July 30, 1997. All per share amounts have been
adjusted to reflect the impact of the stock split. The effect of this stock
split has not been reflected in the May 31, 1997 consolidated balance sheet.
Additionally, the Company announced a 30% effective increase in the Company's
quarterly cash dividend on the post split shares. The cash dividend of $.035
will be paid August 27, 1997 to shareholders of record on August 13, 1997.
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") recorded net sales of $229.2
million for the first quarter of fiscal 1998, an 11.7% increase over the
$205.3 million recorded for the same period in fiscal 1997. Same-store sales
for the first quarter of fiscal 1998 increased 15.2% compared to the first
quarter of fiscal 1997, excluding apparel sales for both periods. The growth
in same-store sales is principally a result of increased customer traffic due
to the national television advertising campaign and the Company's store
remodel and remerchandising programs which have improved the layout and
design of approximately 50 stores since the first quarter of last fiscal
year. Hard goods sales, such as furniture and decorative accessories,
increased 18.3% during the first quarter of fiscal 1998 compared to the first
quarter of fiscal 1997. The Company completely discontinued soft goods in
all Pier 1 Imports stores at the end of fiscal 1997, which represented 6.7%
of merchandise sales during the first quarter of fiscal 1997. Sales on the
Company's proprietary credit card were $60.8 million for the first quarter of
fiscal 1998, an increase of $5.2 million, or 9.4%, over the same period of
fiscal 1997. The Company encourages growth of its proprietary credit card
sales through targeted marketing promotions. The Company opened eight new
North American stores and closed six stores during the first quarter of
fiscal 1998, bringing the North American store count to 689 at the end of the
fiscal 1998 first quarter compared to 668 stores a year ago. Stores
worldwide, including North America, Puerto Rico and international operations
in the United Kingdom, Mexico and Japan, aggregated 724 at the fiscal 1998
first quarter-end.
Gross profit, after related buying and store occupancy costs, expressed
as a percentage of sales, increased 350 basis points to 43.3% for the first
quarter of fiscal 1998 compared to 39.8% for the first quarter of fiscal
1997. Merchandise margins increased to 56.5% for the first three months of
fiscal 1998 from 53.9% for the same period a year ago due to the Company's
reduced reliance on promotional pricing as a result of the success of its
national television advertising campaign. Store occupancy costs, as a
percentage of sales, improved 90 basis points to 13.3% during the first three
months of fiscal 1998 over the comparable period of fiscal 1997 primarily due
to the Company's purchase (in the fourth quarter of fiscal 1997) of two
corporations that had previously leased store locations to the Company,
thereby eliminating base rent expense associated with those store properties.
Selling, general and administrative expenses, including marketing, as a
percentage of sales, increased 140 basis points to 30.9% in the first quarter
of fiscal 1998 compared to the same period last year. In total dollars,
selling, general and administrative expenses for the first quarter of fiscal
1998 increased $10.4 million over the first quarter of fiscal 1997, with $6.0
million of the increase attributable to store expenses that normally grow
proportionately with sales and net new stores, such as salaries and supplies.
In addition, other selling, general and administrative expenses increased
during the first quarter of fiscal 1998 due to a $2.1 million increase in
marketing expenses, a $1.0 million increase in funding costs of securitized
receivables and a $1.3 million increase in other expenses.
Operating income increased $6.4 million, or 39.2%, to $22.8 million for
the first quarter of fiscal 1998 compared to $16.4 million in the first
quarter of fiscal 1997.
Interest and investment income declined in the first quarter of fiscal
1998 compared to the first quarter of fiscal 1997 primarily as a result of
the recording of $1.6 million of investment income earned on the investment
in Whiffletree Partners, L.P. ("Whiffletree") in the first quarter of fiscal
1997. This investment in Whiffletree was terminated in the first quarter of
fiscal 1997.
Interest expense decreased $2.2 million during the first quarter of
fiscal 1998 compared to the same period of fiscal 1997. This decrease is
primarily a result of decreased interest expense related to the conversion of
the 6 7/8% convertible subordinated notes in the second quarter of fiscal
1997, the exchange of the 8 1/2% exchangeable debentures, the retirement of
the 11 1/2% subordinated debentures due 2003 and the 11% senior notes due
2001 in the third quarter of fiscal 1997 and the repayment of $20 million
outstanding under the Company's bank revolving credit facility in the third
quarter of fiscal 1997. The decrease was partially offset by interest
expense related to the issuance in the third quarter of fiscal 1997 of the 5
3/4% convertible subordinated notes due 2003.
The Company's effective income tax rate for fiscal 1998 is estimated at
40%, unchanged from the first quarter of fiscal 1997.
Net income for the first quarter of fiscal 1998 aggregated $12.6
million or $.18 per share on a fully diluted basis compared to net income of
$8.3 million or $.13 per share on a fully diluted basis for the first quarter
of fiscal 1997. The aforementioned per share amounts have been adjusted to
reflect the impact of the impending stock split. See: Note 3 of the Notes
to Consolidated Financial Statements.
Liquidity and Capital Resources
Cash, including temporary investments, decreased $1.4 million to $30.9
million at the end of the first quarter of fiscal 1998 from $32.3 million at
fiscal 1997 year-end. This decrease was primarily due to capital
expenditures of $9.6 million, beneficial interest in securitized receivables
of $2.9 million, cash dividend payments of $1.8 million and the acquisition
of a bank charter and other assets for $0.9 million. These cash expenditures
were partially offset by cash flow from operations of $13.3 million. Other
investing and financing activities provided cash of $0.5 million. Cash flow
from operations improved $1.6 million during the first three months of fiscal
1998 over the same period of fiscal 1997 primarily due to higher net income
in fiscal 1998 compared to fiscal 1997.
Working capital requirements will continue to be provided by cash on
hand, operations, sales of proprietary credit card receivables, a committed
three-year $65 million competitive advance and revolving credit facility, all
of which was available at the fiscal 1998 first quarter-end, and other short-
term (12-month) bank facilities aggregating $159.7 million, of which $49.3
million was available at the fiscal 1998 first quarter-end. The short-term
bank facilities consist of $29.7 million of committed lines of credit and
$130 million of uncommitted lines. The Company's current ratio at the end of
the first quarter of fiscal 1998 was 3.1 to 1 compared to 3.0 to 1 at fiscal
1997 year-end. The Company's minimum operating lease commitments remaining
for fiscal 1998 are $72 million, and the present value of total existing
minimum operating lease commitments is $366 million. These commitments will
be funded from operating cash flow.
At the end of the first quarter of fiscal 1998, approximately $10.4
million remained in the Company's previously established reserve to disengage
from financial support of Sunbelt Nursery Group, Inc. ("Sunbelt"). Cash
requirements to fund this reserve will continue to be funded through working
capital and operations. As of June 1997, seven of the 13 store properties
had been sold at costs consistent with the Company's previously recorded
reserve. The Company guarantees other Sunbelt store lease commitments
aggregating $2.8 million with a present value of approximately $2.4 million
at the end of the fiscal 1998 first quarter. The Company is not aware of any
defaults on these leases.
On January 31, 1997, Sunbelt and the Company entered into an agreement
to modify the terms of the July 31, 1995 Settlement Agreement to allow
Sunbelt the opportunity to replace an existing $8.0 million obligation with
an $0.8 million promissory note and certain cash payments. Sunbelt and its
chairman did not exercise their rights under the agreement to replace the
existing $8.0 million obligation, and the agreement was subsequently
terminated with no modification to the terms of the Settlement Agreement.
The $8.0 million obligation is not reflected on the Company's financial
statements.
In May 1997, the Company acquired a national bank in Omaha, Nebraska.
The Company plans to use the newly named Pier 1 National Bank to standardize
the interest rates and fees charged on its proprietary credit card and export
the Nebraska interest rate to all other states where the Company makes credit
card sales. The Company paid cash of $0.9 million for the bank charter and
other assets. As of May 31, 1997, the Company had 2.3 million cardholders of
which 400,155 maintain active accounts with average purchases of $137 per
month.
The Company has reviewed its systems for compliance with the year 2000
requirements. The Company has incurred immaterial expenses to comply with
the year 2000 requirements. Any further work needed to modify existing
systems is not expected to have a material impact on the Company's results of
operations.
In June 1997, the Company announced a three for two stock split of its
common shares distributable to stockholders of record on July 16, 1997. The
stock split will be effected in the form of a 50% stock dividend. All per
share amounts have been adjusted to reflect the impact of the stock split.
The effect of this stock split has not been reflected in the May 31, 1997
consolidated balance sheet.
During the first quarter of fiscal 1998, the Company paid a $.04 per
share cash dividend and has subsequently declared a cash dividend of $.035
per share, a 30% effective increase in the Company's quarterly cash dividend
on the post split shares, payable on August 27, 1997 to shareholders of
record on August 13, 1997. The Company currently expects to continue to pay
cash dividends in fiscal 1998 but to retain most of its future earnings for
expansion of the Company's business.
In June 1997, Standard & Poor's ("S&P") raised the Company's corporate
credit rating to BB+ from BB and its subordinated debt rating to BB- from B+.
In addition, S&P assigned the Company's $65 million competitive advance and
revolving credit facility a rating of BB+, the same as the corporate credit
rating. The Company's S&P ratings were upgraded due to improved cash flows
from fiscal 1996 year-end to fiscal 1997 year-end.
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
26, 1997 for the purpose of electing seven (7) Directors to hold office until
the next Annual Meeting of Shareholders and to vote upon the proposed senior
management annual bonus plan. The result of this vote follows:
Director Election
-----------------
Director FOR WITHHELD
-------- --- --------
Clark A. Johnson 38,127,901 63,167
Marvin J. Girouard 38,132,451 58,617
Martin L. Berman 38,095,793 95,275
Craig C. Gordon 38,128,808 62,260
James M. Hoak, Jr. 38,132,776 58,292
Sally F. McKenzie 38,118,645 72,423
Charles R. Scott 37,981,804 209,264
Proposed Senior Management Annual Bonus Plan
--------------------------------------------
For Against Abstained Broker Non-voters
--- ------- --------- -----------------
36,436,686 565,928 367,684 820,770
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits See Exhibit Index.
(b) Reports on Form 8-K None.
SIGNATURES
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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 14, 1997 By: /s/ Clark A. Johnson
------------- -------------------------------------------
Clark A. Johnson, Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Date: July 14, 1997 By: /s/ Stephen F. Mangum
------------- -------------------------------------------
Stephen F. Mangum, Senior Vice President
and Chief Financial Officer
(Principal Accounting Officer)
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
10.1 Senior Management Annual Bonus Plan
27 Financial Data Schedule for Three-Month Period ended May 31,
1997.