Pier 1 2009 Annual Report Download - page 15

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The Company’s turnaround strategy may cause a disruption in operations and may not be successful.
The Company began implementing a strategy during fiscal 2008 for returning the Company to
profitability. The turnaround strategy may negatively impact the Company’s operations, which could
include disruptions from the realignment of operational functions within the home office and
distribution centers, changes in the store administration reporting structure, and changes in the
Company’s product assortments or marketing strategies. These changes could adversely affect the
Company’s business operations and financial results. While the Company believes any disruptions would
be short-term, it is unknown whether the impact would be material. In addition, if the Company’s
turnaround strategy is not successful, takes longer than initially projected, or is not executed effectively,
the Company’s business operations and financial results could be adversely affected.
The Company must be able to anticipate, identify and respond to changing trends and customer
preferences for home furnishings.
The success of the Company’s specialty retail business depends largely upon its ability to predict
trends in home furnishings consistently and to provide merchandise that satisfies consumer demand in a
timely manner. Consumer preferences often change and may not be reasonably predicted. A majority
of the Company’s merchandise is manufactured, purchased and imported from countries around the
world and may be ordered well in advance of the applicable selling season. Extended lead times may
make it difficult to respond rapidly to changes in consumer demand and as a result, the Company may
be unable to react quickly and source needed merchandise. In addition, the Company’s vendors may
not have the ability to handle its increased demand for product. The seasonal nature of the business
leads the Company to purchase and requires it to carry a significant amount of inventory prior to its
peak selling season. As a result, the Company may be vulnerable to evolving home furnishing trends,
changes in customer preferences, and pricing shifts, and may misjudge the timing and selection of
merchandise purchases. The Company’s failure to anticipate, predict and respond in a timely manner to
changing home furnishing trends could lead to lower sales and additional discounts and markdowns in
an effort to clear merchandise, which could have a negative impact on merchandise margins and in turn
the results of operations.
Failure to control merchandise returns could negatively impact the business.
The Company has established a provision for estimated merchandise returns based upon historical
experience and other known factors. If actual returns are greater than those projected by management,
additional reductions of revenue could be recorded in the future. Also, to the extent that returned
merchandise is damaged, the Company may not receive full retail value from the resale of the returned
merchandise. Introductions of new merchandise, changes in merchandise mix, merchandise quality
issues, changes in consumer confidence, or other competitive and general economic conditions may
cause actual returns to exceed the provision for estimated merchandise returns. An increase in
merchandise returns that exceeds the Company’s current provisions could negatively impact the
business and operating results.
A disruption in the operation of the domestic portion of the Company’s supply chain could impact its
ability to deliver merchandise to its stores and customers, which could impact its sales and results of
operations.
The Company maintains regional distribution centers in Maryland, Illinois, Ohio, Texas, California,
Georgia and Washington. At these distribution centers, merchandise is received, allocated, and shipped
to the Company’s stores. Major catastrophic events such as fire or flooding, malfunction or disruption
of the information systems, or shipping problems could result in distribution delays of merchandise to
the Company’s stores and customers. Such disruptions could have a negative impact on the Company’s
sales and results of operations.
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