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 August 26, 1995
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 September 27, 1995
Common Stock, $1.00 par value 39,432,744
<PAGE>
<PAGE>
PART I
------
Item 1. Financial Statements.
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
Aug. 26, Aug. 27, Aug. 26, Aug. 27,
1995 1994 1995 1994
-------- -------- -------- --------
Net sales $199,456 $185,403 $376,271 $346,889
Operating costs and expenses:
Cost of sales (including
buying and store occupancy) 124,698 115,170 232,375 211,305
Selling, general and
administrative expenses 51,736 50,436 103,794 100,624
Depreciation and amortization 4,215 3,927 8,338 7,780
-------- -------- -------- --------
180,649 169,533 344,507 319,709
-------- -------- -------- --------
Operating income 18,807 15,870 31,764 27,180
Interest income (251) (419) (953) (724)
Interest expense 3,222 3,735 6,494 7,339
Provision for Sunbelt Nursery
Group, Inc. defaults 14,000 -- 14,000 --
-------- -------- -------- --------
Income before income taxes 1,836 12,554 12,223 20,565
Provision for income taxes 1,912 3,898 6,064 6,374
-------- -------- -------- --------
Net income (loss) $ (76) $ 8,656 $ 6,159 $ 14,191
======== ======== ======== ========
Net income per share:
Primary $.00 $.22 $.16 $.36
==== ==== ==== ====
Fully diluted $.00 $.21 $.16 $.34
==== ==== ==== ====
Average shares outstanding during
period, including common stock
equivalents:
Primary 39,634 39,646 39,731 39,621
====== ====== ====== ======
Fully diluted 45,134 46,213 45,249 46,188
====== ====== ====== ======
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
PIER 1 IMPORTS, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands except share data)
(Unaudited)
August 26, Feb. 25,
1995 1995
---------- --------
ASSETS
Current assets:
Cash, including temporary investments of $27,058
and $46,173, respectively $ 37,579 $ 54,203
Accounts receivable, net 77,968 64,229
Inventories 225,486 200,968
Other current assets 32,479 33,487
-------- --------
Total current assets 373,512 352,887
Properties, net 103,762 105,618
Other assets 34,436 30,219
-------- --------
$511,710 $488,724
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 17,602 $ 2,638
Accounts payable and accrued liabilities 102,550 82,419
-------- --------
Total current liabilities 120,152 85,057
Long-term debt 139,882 154,432
Deferred income taxes 2,536 2,538
Other non-current liabilities 21,098 21,501
Stockholders' equity:
Common stock, $1.00 par, 200,000,000 shares
authorized, 39,877,000 and 37,826,000
issued, respectively 39,877 37,826
Paid-in capital 110,637 93,833
Retained earnings 83,310 97,315
Cumulative currency translation adjustments (1,039) (1,195)
Less - 467,000 and 162,000 common shares in
treasury, at cost, respectively (3,835) (1,477)
Less - subscriptions receivable and unearned
compensation (908) (1,106)
-------- --------
228,042 225,196
-------- --------
$511,710 $488,724
======== ========
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
August 26, August 27,
1995 1994
---------- ----------
Cash flow from operating activities:
Net income $ 6,159 $14,191
Adjustments to reconcile to net cash provided by
operating activities:
Depreciation and amortization 8,338 7,780
Deferred taxes and other 2,331 5,280
Provision for Sunbelt Nursery Group, Inc.
defaults 14,000 --
Changes in cash from:
Inventories (24,518) 3,916
Accounts receivable and other current assets (12,762) (10,197)
Accounts payable and accrued expenses 11,640 (2,559)
Store-closing reserve (4,920) (1,094)
Other assets, liabilities and other, net (89) (573)
------- -------
Net cash provided by operating activities 179 16,744
------- -------
Cash flow from investing activities:
Capital expenditures (7,879) (8,630)
Proceeds from disposition of properties 237 16
Loan to Sunbelt Nursery Group, Inc. -- (9,600)
Other investments (5,163) (1,193)
------- -------
Net cash used in investing activities (12,805) (19,407)
------- -------
Cash flow from financing activities:
Cash dividends (2,390) (1,878)
Retirement of long-term debt (14,750) (2,500)
Net borrowings under line of credit agreements 15,000 12,000
(Payments) proceeds from (purchases) sales of
capital stock, treasury stock, and other, net (1,858) 551
------- -------
Net cash (used in) provided by financing
activities (3,998) 8,173
------- -------
Change in cash (16,624) 5,510
Cash at beginning of period 54,203 17,123
------- -------
Cash at end of period $37,579 $22,633
======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE><TABLE>
PIER 1 IMPORTS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED AUGUST 26, 1995
(In thousands)
(Unaudited)
<CAPTION>
Cumulative Subscriptions
Currency Receivable and Total
Common Paid-in Retained Translation Treasury Unearned Stockholders'
Stock Capital Earnings Adjustments Stock Compensation Equity
------- -------- -------- ----------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance February 25, 1995 $37,826 $ 93,833 $97,315 ($1,195) ($1,477) ($1,106) $225,196
Purchase of treasury stock (3,542) (3,542)
Restricted stock grant and amortization 7 44 (129) 198 120
Stock Purchase Plan, exercise of stock
options and other 166 499 365 1,313 2,343
Currency translation adjustments 156 156
Cash dividends, declared or paid (2,390) (2,390)
Five percent stock dividend 1,878 16,261 (18,139) 0
Net income 6,159 6,159
------- -------- ------- ------- ------- ------- --------
Balance August 26, 1995 $39,877 $110,637 $83,310 ($1,039) ($3,835) ($ 908) $228,042
======= ======== ======= ======= ======= ======= ========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<PAGE>
PIER 1 IMPORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying unaudited financial statements should be read in
conjunction with the Form 10-K for the year ended February 25, 1995. All
adjustments that are, in the opinion of management, necessary for a fair
statement of the financial position as of August 26, 1995, and the results of
operations and cash flows for the interim periods ended August 26, 1995 and
August 27, 1994 have been made and consist only of normal recurring
adjustments. The results of operations for the three and six months ended
August 26, 1995 and August 27, 1994 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 - Provision for Sunbelt Nursery Group, Inc. defaults
During the second quarter of fiscal 1996, the Company recorded a charge
of $14 million, or $9.6 million on an after-tax basis, which represents the
estimated cost to disengage from its financial support of Sunbelt Nursery
Group, Inc. ("Sunbelt"). This charge resulted from Sunbelt's default on 13
nursery store subleases from the Company in April 1995. Sunbelt has also
defaulted on three nursery store leases guaranteed by the Company. The
charge reflects the Company's estimated losses resulting from the lease
termination costs associated with the 13 nursery stores and from the
Company's guarantees of other Sunbelt store leases.
Note 2 - 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 diluted net
income, interest and debt issue costs, net of any applicable taxes, have been
added back to net income to reflect assumed conversions. The computation of
fully diluted net income per share for the three and six months ended August
26, 1995 was antidilutive; therefore, the amounts reported for primary and
fully diluted net income per share are the same.
<PAGE>
<PAGE>
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 $199.5
million and $376.3 million for the second quarter and six-month period of
fiscal 1996, increases of 7.6% and 8.5%, respectively, compared to the same
periods of fiscal 1995. The increase in sales for the first six months of
fiscal 1996 is primarily attributable to an 8.5% increase in weighted average
store count (which is calculated based on the number of days a store is open
during any given period) compared to the same period last year. Same-store
sales increased 2.5% and 2.4% for the second quarter and six-month periods of
fiscal 1996, respectively, over the prior fiscal year. Sales of hard goods
merchandise such as furniture and decorative accessories increased 5.5%
during the first six months of fiscal 1996 versus the comparable period of
fiscal 1995 and sales of soft goods merchandise such as apparel and jewelry
decreased 4.3% in the first half of fiscal 1996 compared to a year ago. Hard
goods and soft goods sales contributed approximately 91% and 9%,
respectively, of total sales for the six-month period of fiscal 1996. Sales
on the Company's proprietary credit card were $91.6 million, or 24.3% of
total sales, during the first six months of fiscal 1996 versus proprietary
credit card sales of $63.3 million, or 18.3% of total sales, for the same
period of fiscal 1995. The Company's store count aggregated 647 at the end
of the second quarter of fiscal 1996 compared to 600 at the end of the second
quarter of fiscal 1995.
Gross profit, after related buying and store occupancy costs, expressed
as a percentage of sales, decreased by 40 basis points to 37.5% for the
second quarter and by 90 basis points to 38.2% for the first six months of
fiscal 1996 versus the same periods a year ago. Store occupancy costs, as a
percentage of sales, increased 60 basis points to 14.5% for the second
quarter of fiscal 1996 and increased 50 basis points to 15.0% for the first
half of fiscal 1996 compared to the same periods of fiscal 1995. These
increases were primarily due to slightly higher occupancy rates on 26 new
stores opened in the first six months of fiscal 1996 compared to 14 new
stores opened for the same period of fiscal 1995, coupled with incremental
increases in floating rate lease payments linked to LIBOR for approximately
55 store operating leases. Second quarter merchandise margins slightly
improved in fiscal 1996 compared to fiscal 1995 as a result of higher margins
on furniture and dining and kitchen merchandise, combined with fewer
clearance markdowns on furniture; however, during the first six months of
fiscal 1996 merchandise margins declined from the year earlier period
primarily due to higher promotional discounts in the first quarter of fiscal
1996.
Selling, general and administrative expenses, including marketing,
expressed as a percentage of sales, decreased 130 basis points to 25.9% in
the second quarter of fiscal 1996 and decreased 140 basis points to 27.6% for
the first half of fiscal 1996 compared to the same periods of fiscal 1995.
In total dollars, expenses increased by $1.3 million during the second
quarter of fiscal 1996 and by $3.2 million during the first six months of
fiscal 1996 versus the comparable periods of fiscal 1995. The increase in
expenses for the first six months of fiscal 1996 is primarily due to a $3.5
million increase in store salaries, which increased proportionately with
sales, a $0.9 million increase in supplies and a $1.6 million increase in net
proprietary credit card costs due to higher processing costs related to the
increase in proprietary credit card sales. However, these processing costs,
as a percentage of proprietary credit card sales, decreased to 4.2% for the
first six months of fiscal 1996 compared to 5.0% for the same period in
fiscal 1995. These selling, general and administrative expenses were
partially offset by a $2.7 million decrease in management bonuses and a $1.7
million shift of marketing expenditures to later in the 1996 fiscal year
primarily related to the Company's national television advertising campaign.
Other various general and administrative expenses increased by $1.6 million.
Net interest expense declined $0.3 million during the second quarter and
$1.1 million during the first six months of fiscal 1996 over the same periods
in fiscal 1995 primarily due to lower effective interest rates coupled with
lower debt levels, net of cash balances.
In April 1993, the Company sold its 49.5% ownership interest in Sunbelt
Nursery Group, Inc. ("Sunbelt") to General Host Corporation ("General Host")
and committed to provide Sunbelt up to $25 million of non-revolving store
development financing through April 1996. In October 1994, in connection
with the sale by General Host of its 49.5% interest in Sunbelt to a third
party unrelated to the Company or General Host, 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. The Company also guarantees
other Sunbelt store lease commitments aggregating $5.2 million with a present
value of approximately $4.2 million. In April 1995, Sunbelt defaulted on the
13 nursery store subleases that comprise the $22.8 million of non-revolving
store development financing, and the Company terminated the subleases.
Sunbelt also defaulted on three nursery store leases guaranteed by the
Company. In July 1995, the Company entered into a settlement agreement with
Sunbelt concerning Sunbelt's default on the 13 store subleases and store
leases guaranteed by the Company. Pursuant to the settlement agreement,
Sunbelt agreed to a claim by the Company of $14.7 million (secured by a
second lien on up to $6 million of Sunbelt's assets) and agreed to continue
to sublease the 13 stores for up to three years or until the Company is able
to find a buyer for the properties. Additionally, Sunbelt is obligated to
make future deferred payments out of its cash flow up to a total of $8
million (which may be prepaid with $2 million in payments by May 10, 1996, or
prepaid with lesser discounts made by May 10, 1998). The remaining $6.7
million of the Company's claim will be deemed satisfied if Sunbelt fully
performs its obligations relating to these and other terms of the settlement
agreement. During the second quarter of fiscal 1996, the Company recorded a
charge of $14 million, or $9.6 million on an after-tax basis, which
represents the estimated cost to disengage from its financial support of
Sunbelt. The charge reflects the Company's estimated losses resulting from
the lease termination costs associated with the 13 nursery stores and from
the Company's guarantees of other Sunbelt store leases.
The Company's effective income tax rate for fiscal 1996 increased to
42.6% compared to 31.0% for fiscal 1995. The increase is primarily due to
the benefit of tax-favored foreign income last fiscal year and the tax
benefit from the sale of Sunbelt common stock recognized in fiscal 1995,
along with the impact of a reduced tax benefit associated with the charge in
fiscal 1996 for Sunbelt's defaults.
Operating income increased $2.9 million to $18.8 million during the
second quarter of fiscal 1996 and increased $4.6 million to $31.8 million for
the first six months of fiscal 1996 versus the comparable periods of fiscal
1995 due to higher sales and improved expense control. Before the Sunbelt
charge, net income aggregated $9.5 million or $0.24 per share for the second
quarter of fiscal 1996 compared to $8.7 million or $0.22 per share for the
second quarter of fiscal 1995. Net income before the Sunbelt charge
aggregated $15.7 million or $0.40 per share for the first six months of
fiscal 1996 compared to $14.2 million or $0.36 per share for the same period
of fiscal 1995. After the Sunbelt charge, the Company reported a net loss of
$76,000 for the second quarter of fiscal 1996 and net income of $6.2 million
or $0.16 per share for the first half of fiscal 1996.
Liquidity and Capital Resources
Cash, including temporary investments, aggregated $37.6 million at the
end of the second quarter of fiscal 1996 down from $54.2 million at fiscal
1995 year-end. The first six months of fiscal 1996 included cash payments on
a $24.5 million seasonal build-up of inventory, a $15.0 million increase in
the proprietary credit card receivable, the retirement of $12.2 million of
the Company's convertible notes, capital expenditures of $7.9 million,
advances to The Pier Retail Group Limited of $5.2 million, lease termination
payments from the store-closing program of $4.9 million, a $2.5 million
sinking fund payment on the Company's long-term debt, cash dividend payments
of $2.4 million, and other financing activities of $1.9 million. These cash
payments were partially offset by net income and other non-cash related items
of $30.8 million, short-term borrowings of $15.0 million, a $13.9 million net
change in other working capital primarily due to the after-tax reserve for
Sunbelt defaults of $9.6 million, and proceeds from the disposition of
properties of $0.2 million.
The Company previously announced that, depending upon market conditions,
it may utilize a portion of its surplus cash during fiscal 1996 to purchase
up to $25 million of the Company's 6 7/8% convertible notes. During the
first half of fiscal 1996, the Company purchased $12.2 million of these
notes, leaving $62.8 million of the Company's convertible notes outstanding
at the end of the fiscal 1996 second quarter.
Final cash requirements to fund the store-closing program from fiscal
1994 for lease terminations are expected to be approximately $6.9 million for
the remainder of fiscal 1996 and will be funded through working capital and
operations. During the first six months of fiscal 1996, approximately $4.9
million was expended and charged against the reserve for lease termination
costs.
Working capital requirements will continue to be provided by cash and
$158.5 million in short-term revolving lines of credit. Under these lines of
credit at August 26, 1995, $15.0 million was outstanding in the form of
short-term borrowings and an additional $56.0 million was committed under
letters of credit. The Company's current ratio at the end of the second
quarter of fiscal 1996 was 3.1 to 1 compared to 4.1 to 1 at fiscal 1995 year-
end and 3.5 to 1 at the end of the second quarter of fiscal 1995. The
Company's minimum operating lease commitments remaining for fiscal 1996 are
$51 million, and the present value of total existing minimum operating lease
commitments is $375 million.
During the first six months of fiscal 1996, the Company paid cash
dividends aggregating $.06 per share, distributed a 5% stock dividend and has
declared a cash dividend of $.03 per share payable on November 15, 1995 to
shareholders of record on November 1, 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 to cover the Company's estimated losses resulting from
the Sunbelt defaults will be funded through working capital and operations
and are not expected to have a significant impact on the Company's liquidity.
<PAGE>
<PAGE>
PART II
-------
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits See Exhibit Index.
(b) Reports on Form 8-K None.
<PAGE>
<PAGE> 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: October 10, 1995 By: /s/ Clark A. Johnson
---------------- -------------------------------------------
Clark A. Johnson, Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Date: October 10, 1995 /s/ Robert G. Herndon
---------------- -------------------------------------------
Robert G. Herndon, Executive Vice
President and Chief Financial Officer
(Principal Financial Officer)
Date: October 10, 1995 /s/ Susan E. Barley
---------------- -------------------------------------------
Susan E. Barley, Vice President and
Controller
(Principal Accounting Officer)
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
10.15 Agreement of Settlement dated July 31, 1995 between Pier Lease,
Inc., the Company, Sunbelt Nursery Group, Inc., Wolfe Nursery,
Inc. and Timothy R. Duoos, incorporated herein by reference to
Exhibit 10.15 to Sunbelt Nursery Group, Inc. Form 10-K/A-2 for
the fiscal year ended January 31, 1995.
27 Financial Data Schedule for Six-month Period Ended August 26,
1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENT OF OPERATIONS AND BALANCE SHEET AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-02-1996
<PERIOD-END> AUG-26-1995
<CASH> 37,579
<SECURITIES> 0
<RECEIVABLES> 82,639
<ALLOWANCES> 4,671
<INVENTORY> 225,486
<CURRENT-ASSETS> 373,512
<PP&E> 220,734
<DEPRECIATION> 116,972
<TOTAL-ASSETS> 511,710
<CURRENT-LIABILITIES> 120,152
<BONDS> 139,882
<COMMON> 39,877
0
0
<OTHER-SE> 188,165
<TOTAL-LIABILITY-AND-EQUITY> 511,710
<SALES> 376,271
<TOTAL-REVENUES> 376,271
<CGS> 232,375
<TOTAL-COSTS> 344,507
<OTHER-EXPENSES> 14,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,494
<INCOME-PRETAX> 12,223
<INCOME-TAX> 6,064
<INCOME-CONTINUING> 6,159
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,159
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
