Pier 1 2013 Annual Report Download - page 13

power outages, 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.
Factors that may or may not be controllable by the Company may negatively affect the Company’s
financial results.
Increases in the Company’s costs that are beyond the Company’s control, including items such as
increases in fuel and transportation costs, higher interest rates, increases in losses from damaged merchandise,
inflation, fluctuations in foreign currency rates, higher costs of labor, labor disputes around the world, increases
in the costs of insurance and healthcare, increases in postage and media costs, higher tax rates and complying
with changes in laws and regulations, including accounting standards, may negatively impact the Company’s
financial results.
Failure to successfully manage and execute the Company’s marketing initiatives could have a negative
impact on the business.
The success and growth of the Company is partially dependent on generating customer traffic in order to
gain sales momentum in its stores and drive traffic to the Company’s website. Successful marketing efforts
require the ability to reach customers through their desired mode of communication utilizing various media
outlets. Media placement decisions are generally made months in advance of the scheduled release date. The
Company’s inability to accurately predict its consumers’ preferences, to utilize the desired mode of
communication, or to ensure availability of advertised products may negatively impact the business and
operating results.
Changes to estimates related to the Company’s property and equipment, or financial results that are
lower than its current estimates at certain store locations, may cause the Company to incur impairment charges
on certain long-lived assets.
The Company makes certain estimates and projections with regards to individual store operations as well
as overall Company performance in connection with its impairment analyses for long-lived assets in accordance
with applicable accounting guidance. An impairment charge is required when the carrying value of the asset
exceeds the estimated fair value or undiscounted future cash flows of the asset. The projection of future cash
flows used in this analysis requires the use of judgment and a number of estimates and projections of future
operating results. If actual results differ from the Company’s estimates, additional charges for asset impairments
may be required in the future. If impairment charges are significant, the Company’s financial results could be
negatively affected.
Risks Related to Profitability
The Company’s success depends, in part, on its ability to operate in desirable locations at reasonable
rental rates and to close underperforming stores at or before the conclusion of their lease terms.
The profitability of the business is dependent on operating the current store base at a reasonable profit,
opening and operating new stores at a reasonable profit, and identifying and closing underperforming stores. For
a majority of the Company’s current store base, a large portion of a store’s operating expense is the cost
associated with leasing the location. Management actively monitors individual store performance and attempts to
negotiate rent reductions to ensure stores can remain profitable or have the ability to rebound to a profitable state.
Current locations may not continue to be desirable as demographics change, and the Company may choose to
close an underperforming store before its lease expires and incur lease termination costs associated with that
closing. The Company cannot give assurance that opening new stores or an increase in closing underperforming
stores will result in greater profits.
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