Pier 1 2008 Annual Report Download - page 19

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
MANAGEMENT OVERVIEW
Introduction
Pier 1 Imports, Inc. (together with its consolidated subsidiaries, the “Company”) is a global importer and
is one of North America’s largest specialty retailers of imported decorative home furnishings and gifts. The
Company imports merchandise directly from over 50 countries, and sells a wide variety of furniture
collections, wicker, decorative accessories, bed and bath products, candles, housewares and other seasonal
assortments in its stores. The Company conducts business as one operating segment. The Company operates
stores in the United States and Canada under the name “Pier 1 Imports”, and, for a portion of fiscal 2008 and
in prior years “Pier 1 Kids.” In order to focus on its core business, the Company closed all Pier 1 Kids and
clearance stores during fiscal 2008. In addition, the Company closed its direct to consumer business, which
included e-commerce and catalogs. The termination of these retail concepts has not only allowed for complete
focus on the core business, but has also resulted in substantial on-going cost savings.
In April of 2007, the Company outlined a plan to return to profitability that was built on six business
priorities. The Company’s management believes that if it executes these business priorities effectively and
efficiently as part of its turnaround strategy, the Company will, over time, return to profitability. The Company
made significant progress on these goals during fiscal 2008. It began by reviewing all costs and seeking ways
to streamline and simplify the organization. Management estimates that on-going savings realized during fiscal
2008 were approximately $125 million. The savings consisted primarily of $53 million in marketing and
$46 million in store and administrative payroll with the remainder of the savings from general cost-cutting
measures. Management expects to continue to realize these on-going cost savings and anticipates savings in
fiscal 2009 to be $160 million on an annual basis compared to fiscal 2007.
During fiscal 2008, the Company continued to conduct reviews of the individual contributions of its
existing store portfolio, including all real estate costs in relation to sales. As a result of these reviews, the
Company closed 83 stores during fiscal 2008 and plans to close approximately 25 stores during fiscal 2009.
The Company opened four stores in fiscal 2008 and plans to open up to three new stores during fiscal 2009.
Additionally, in June 2007, the Company announced it was considering all options related to its corporate
headquarters in Fort Worth, Texas in order to recoup its investment and minimize its on-going costs.
Subsequent to fiscal 2008 year end, the Company entered into an agreement to sell the headquarters building
and accompanying land for $104 million. As part of the transaction, the Company will also enter into a lease
agreement to rent approximately 250,000 square feet of office space in the building. The transaction is
expected to close no later than June 30, 2008.
A key component of the turnaround strategy was strengthening the Company’s merchandise assortment in
stores. The Company strengthened its buying department during fiscal 2008 by reassigning tasks, promoting
internal talent and hiring new buyers with a variety of backgrounds. Buyers are now able to better focus on
merchandise strategy and working with vendors to develop new products. The Company’s merchandise mix
now includes a larger selection of both affordable impulse items and small accessory furniture. Additionally,
the merchandise planning and allocations teams have been combined under single executive management to
facilitate better planning and decision making around the quantitative side of the buying process and to ensure
the product is in the appropriate store at the optimal time. Many process improvements and technology
implementations have been initiated to make the supply chain more efficient and reduce costs. These initiatives
have reduced the lead times required for ordering merchandise, simplified overseas consolidation of merchan-
dise, and improved distribution center-to-store delivery schedules, and will enable the Company to reduce the
levels of back stock maintained in the distribution centers, thus reducing carrying costs. The Company
currently plans to reduce merchandise levels at the distribution centers by revising its ordering process and
reducing future order quantities. The Company will continue working with its business partners and vendors to
reduce damage to inventory at every stage of the supply chain, improve the cost and efficiency of overseas
consolidation, reduce freight costs, and ensure the timely shipment of merchandise.
17