Pier 1 Imports Inc. (NYSE: PIR) is set to release its second-quarter earnings results on Wednesday after the market closes. The home decoration retailer has been struggling for several quarters in a row due to weak store traffic and double digits decline in comparable-store sales. This could increase the chances of the company going bankrupt.
The company has been spending more on promotion and clearance activity for driving traffic and conversion. But it has not yielded well despite increasing the expenses. Comparable sales and gross profit trends are anticipated to remain soft in the second quarter due to the continued level of clearance activity of lower priced and lower margin goods.
The company’s net debt position has increased more than fivefold over the past twelve months. As of June 1, 2019, the company had $30.5 million of cash and cash equivalents while total debt stood at $952.63 million. Market analysts fear that the company could easily turn bankrupt due to the discouraging state and the massive cash burn.
For the second half of fiscal 2020, Pier 1 Imports anticipates a gradual improvement backed by new merchandising and marketing initiatives for fall. The majority of the $90 million cost-cutting initiatives will be realized in the second half of the year. The company planned to exit off-brand merchandise in the second quarter for lowering its cost structure.
Analysts expect the company to report a loss of $15.88 per share on revenue of $315.2 million for the second quarter. In comparison, during the previous year quarter, Pier 1 Imports posted a loss of $12.6 per share on revenue of $355.34 million. The company has missed analysts’ expectations in all of the past four quarters. Majority of the analysts recommended a “hold” rating.
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For the first quarter, Pier 1 Imports reported a wider loss due to the effect of the 1-for-20 reverse stock split. Net sales decreased by 15.5% and comparable sales declined by 13.5%. The results were hurt by lower average customer spend, which is primarily attributable to changes in its merchandise mix, as well as decreased store traffic. The company operated 967 stores at the end of the first quarter, a decrease of 30 from last year.
The company remained on track to achieve the previously outlined benefits that will be realized through cost reductions of $100 million to $110 million this year and now expects the substantial majority of those benefits. The expense savings the company plans to realize in the second half of fiscal 2020 are expected to be absorbed by lower gross margins rather than driving the full-year net income and EBITDA recapture it previously outlined.