Pier 1 2014 Annual Report Download - page 24

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Operating income for fiscal 2014 was 9.9% of sales, compared to 11.7% of sales in fiscal 2013. The year-over-year decline was
attributable to the promotional cadence impact on gross profit and increased depreciation and amortization which has resulted
from continued capital investment in support of the Company’s growth initiatives.
Capital expenditures for the year totaled $80.3 million. Of that amount, approximately half was deployed toward the opening of
27 new Pier 1 Imports stores, the refurbishment of approximately 50 locations, major remodels at six locations and the rollout of
new merchandise fixtures and lighting in numerous existing locations. The remaining capital expenditures were primarily utilized
for technology and infrastructure initiatives, including e-Commerce and the new point-of-sale system. Capital expenditures in
fiscal 2015 are expected to be at similar levels to fiscal 2014 expenditures, with approximately half allocated to stores and other
leasehold improvements and the balance being deployed toward technology and infrastructure.
The Company’s share repurchase program announced in December 2012 was completed on September 30, 2013, with total
repurchases during fiscal 2014 of 4,525,805 shares at a weighted average cost of $22.10 per share for a total cost of $100.0
million. On October 18, 2013, the Company announced that its Board of Directors authorized a $200 million share repurchase
program. As of March 1, 2014, the Company had repurchased 5,262,452 shares of its common stock under the October 2013
program at a weighted average cost of $19.74 per share for a total cost of $103.9 million and $96.1 million remained available
for further repurchases. Of the $203.9 million in total repurchases in fiscal 2014, $11.6 million were settled in March of fiscal
2015. Amounts repurchased but settled subsequent to year end are considered non-cash financing activities and are excluded
from the Consolidated Statements of Cash Flows. Subsequent to year end, the Company utilized a total of $96.1 million to
repurchase 5,071,812 shares of the Company’s common stock at a weighted average price per share of $18.95 and as of
April 10, 2014, the October 2013 program was completed. On April 3, 2014, subsequent to year end, the Company announced
a $0.06 per share quarterly cash dividend on the Company’s outstanding shares of common stock to shareholders of record on
April 23, 2014, which is payable on May 7, 2014. Subsequent to year end, on April 10, 2014, the Company announced a new
$200 million common stock share repurchase program, and as of April 25, 2014, the entire amount remained available for
repurchase.
Overview of Business
The Company’s key financial and operational indicators used by management to evaluate the performance of the business
include the following (trends for these indicators are explained in the comparative discussions of this section):
Key Performance Indicators 2014 2013 2012
Total sales growth 3.9% 11.2% 9.8%
Comparable stores sales growth (1) 2.4% 7.5% 9.5%
Sales per average retail square foot (1) $ 202 $ 198 $ 184
Gross profit as a % of sales 42.1% 43.6% 42.5%
Selling, general and administrative expenses as a % of sales 30.0% 30.1% 31.0%
EBITDA (in millions) (2) $215.4 $232.0 $187.7
Operating income as a % of sales 9.9% 11.7% 10.1%
Net income as a % of sales 6.1% 7.6% 11.0%
Total retail square footage (in thousands) 8,451 8,358 8,271
Total retail square footage increase 1.1% 1.1% 0.5%
(1) Includes orders placed online for store pick-up. All fiscal years were calculated on a 52-week basis.
(2) See reconciliation of Net Income to Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) in Reconciliation of Non-GAAP Financial Measures .
Stores included in the comparable store sales calculation are those stores that have been open since the beginning of the
preceding fiscal year. In addition, orders placed online for store pick-up were included in the calculation. Remodeled or relocated
stores are included if they meet specific criteria. Those criteria include the following: the new store is within a specified distance
serving the same market, no significant change in store size, and no significant overlap or gap between the closing and
reopening. Such stores are included in the comparable store sales calculation in the first full month after the re-opening. If a
relocated or remodeled store does not meet the above criteria, it is excluded from the calculation until it meets the Company’s
established definition of a comparable store.
20 PIER 1 IMPORTS, INC. 2014 Form 10-K