Pier 1 2016 Annual Report Download - page 27

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
estate portfolio; reducing store and administrative expenses; improving supply chain efficiencies; managing inventory levels;
improving promotional effectiveness; and moderating capital expenditures. In the near-term, profitability will be challenged by a
planned increase in media spending, expected continuing promotional and clearance activity and the cost of recent distribution
center network inefficiencies.
The Company has set out several key guideposts by which to measure the Company’s performance in achieving its objectives,
which are:
1. Brand traffic, conversion and average ticket;
2. Stores as sales and customer experience centers;
3. Merchandise margin and gross profit;
4. Fulfillment and home delivery;
5. Selling, general and administrative expenses; and
6. Capital allocation.
The Company closed 33 stores, on a net basis, during fiscal 2016. These closures are consistent with, and a part of, the real
estate optimization plan previously announced by the Company. The real estate optimization plan includes three parts: (1) closure
of approximately 100 stores over a three to four fiscal-year period which commenced in fiscal 2016, primarily through natural
lease expirations and relocations; (2) a more modest new store opening and relocation program; and (3) ongoing renegotiations
of rent commitments.
The Company entered into a $200 million Term Loan Facility. As of February 27, 2016, the Company had $197.0 million
outstanding under its $200 million Term Loan Facility. See “Liquidity and Capital Resources — Revolving Credit Facility” and
“Liquidity and Capital Resources — Term Loan Facility” below for more information.
As of February 27, 2016, the Company had repurchased 12,669,435 shares of its common stock under the April 2014 program
at a weighted average cost of $12.06 per share for a total cost of $152.8 million, and $47.2 million remained available for further
repurchases. Subsequent to year end, through April 20, 2016, under the April 2014 program, the Company utilized a total of
$0.8 million to repurchase 120,000 shares of the Company’s common stock at a weighted average price per share of $7.01 and
$46.3 million remained available for further repurchases under that program. On April 13, 2016, subsequent to year end, the
Company announced a $0.07 per share quarterly cash dividend on the Company’s outstanding shares of common stock to
shareholders of record on April 27, 2016, which is payable on May 11, 2016.
Overview of Business
The Company has revised the presentation of the reporting of credit and debit card fees (“Credit Card Fees”) for all periods
presented. The Company previously reported Credit Card Fees as a reduction to net sales and has revised its presentation to
report Credit Card Fees as a component of selling, general and administrative (“SG&A”) expenses. This revised presentation
results in an immaterial increase to both net sales and SG&A expenses. There is no impact to operating income, net income, the
balance sheet or statement of cash flows.
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 below).
Key Performance Indicators 2016 2015 2014
Total sales growth 0.4% 5.2% 3.9%
Company comparable sales growth 0.7% 4.7% 2.3%
Gross profit as a % of sales 37.3% 40.8% 42.7%
SG&A expenses as a % of sales 30.6% 31.6% 30.8%
EBITDA (in millions) (1) $125.2 $176.3 $215.4
EBITDA as a % of sales 6.6% 9.4% 12.0%
Operating income as a % of sales 4.0% 6.8% 9.8%
Net income as a % of sales 2.1% 4.0% 6.0%
Total retail square footage (in thousands) 8,165 8,405 8,451
(1) See reconciliation of Net Income to EBITDA in “Reconciliation of Non-GAAP Financial Measures.”
PIER 1 IMPORTS, INC. 2016 Form 10-K 21