Pier 1 2012 Annual Report Download - page 25

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
MANAGEMENT OVERVIEW
Introduction
Pier 1 Imports, Inc is one of North America’s largest specialty retailers of decorative home furnishings
and gifts. The Company directly imports merchandise from many countries, and sells a wide variety of
decorative accessories, furniture, candles, housewares, gifts and seasonal products in its stores. The Company
conducts business as one operating segment and operates stores in the United States and Canada under the name
Pier 1 Imports. As of February 25, 2012, the Company operated 1,052 stores in the United States and Canada.
During the first quarter of fiscal 2012, the Company announced a three-year growth plan designed to
drive sales, further improve profitability and deliver shareholder value. Under the three-year growth plan, the
Company established the following financial targets: sales per retail square foot of $200, operating margins of at
least 10% and within five years, an online sales contribution of at least 10% of total revenues. The plan also
included investing $200 million of capital in improvements to the Pier 1 Imports store portfolio, infrastructure
enhancements, and the acceleration of e-Commerce initiatives. Additionally, the Company’s Board of Directors
approved a $100 million initial share repurchase program. The Company is pleased with the significant progress
and accomplishments under the first year of the plan and as a result, has adopted a new three-year plan that
includes increased financial goals, as detailed further below.
Fiscal 2012 total sales increased 9.8% and comparable store sales increased 9.5% compared to the prior
year. The increases were primarily attributable to increases in store traffic and average ticket versus last year.
Sales per retail square foot were $184 for fiscal 2012, compared to $168 in fiscal 2011. Management believes
that the Company’s sales will continue to improve as a result of its unique and special merchandise assortments
and superior in-store experience.
Merchandise margins for fiscal 2012 were 59.8% of sales compared to 58.6% of sales in fiscal 2011. This
improvement was the result of strong input margins, the right balance of regular and promotional pricing, and
well-managed inventory. Store occupancy costs during fiscal 2012 were $265.9 million, or 17.3% of sales,
compared to $262.4 million, or 18.8% of sales, during fiscal 2011. Gross profit for fiscal 2012 was 42.5% as a
percentage of sales, compared to 39.8% in fiscal 2011.
Operating income for fiscal 2012 was 10.1% of sales, exceeding the Company’s three-year goal of 10%,
compared to 7.4% of sales in fiscal 2011. The year-over-year improvement was primarily due to increases in
sales and merchandise margins.
During fiscal 2012, the Company deployed $62.3 million toward capital expenditures, including $33.8
million for new store openings and improvements to the Pier 1 Imports store portfolio, as well as $28.5 million
for infrastructure enhancements. During fiscal 2012, the Company opened 15 new Pier 1 Imports stores,
refurbished 125 existing stores with an enhanced merchandise fixture package and new lighting upgrades,
completed major remodels at three existing locations and added new merchandise fixtures throughout all Pier 1
Imports stores. The Company’s strategy to remodel and refurbish existing stores is significantly improving the
shopping experience for Pier 1 Imports customers and driving increases in sales productivity. The Company is
also focused on strengthening its infrastructure through strategic investments in technology and systems designed
to drive improvements in processes, efficiencies and analytics throughout the organization. In fiscal 2012, the
Company invested in initiatives such as the initial planning and development stage of the Company’s e-
Commerce platform, improved planning and allocation and replenishment systems, a new labor scheduling
optimization tool, and the replacement of certain legacy systems.
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