Pier 1 Imports May Soon Be Shipped Out

Daunting events have buffeted Pier 1 Imports: The recession, exacerbated by the gulf war, has depressed sales and slashed fiscal 1991 earnings. Management has had to roll back new-store openings and eliminate headquarters staff positions to curb costs. Even so, shares of this retailer have raced up more than 50% since December, from 4 3/4 to 7 3/4.

The stock's jump caught analysts by surprise, since most of them have been down on Pier 1, which operates 570 stores in 44 states and Canada that sell furniture and furnishings imported mainly from India, China, and Taiwan. Analyst Bart Schneider of Value Line has been warning clients for months to steer clear of the stock, citing a poor retailing environment, the company's high debt level, and problems with its recent entry into a new business--lawn and garden products.

But that hasn't stopped several aggressive investors from snapping up Pier 1 shares, particularly in recent weeks. They argue that the company's earnings should turn around as the recovery picks up steam. These pros think Pier 1's earnings will double in the year ending Mar. 2, 1992, to 55~ a share, from an estimated 25~ in fiscal 1991. Last year, Pier 1 earned 71~.

IN A BIND. But to the pros, there's a more compelling reason to buy: Pier 1 may be for sale. Some 58% of the company's voting stock is controlled by Intermark, a $1 billion holding company that has been in the red for the past six quarters. In its latest quarterly report, Intermark says it's restructuring operations and debt to improve cash flow and profitability.

Part of that restructuring may well be the sale of Pier 1. One high-level executive of Pier 1 has confided to a money manager that it's likely the company will be sold to help ease Intermark's financial burden. Intermark Chairman and CEO Charles "Red" Scott, who was Pier 1's chairman from 1985 to 1988, is now vice-chairman of Pier 1.

Jack Sullivan, an investment adviser at Van Kasper, a San Francisco investment firm, thinks Pier 1 "is one of the most undervalued specialty retailers around" despite the stock's recent uptick. Based on earnings growth and assets, Sullivan, who has been buying heavily, estimates that Pier 1 is worth at least $15 a share. Regarding the rumor that Intermark may have to put the company on the block, Sullivan says: "Pier 1 is the most sellable asset Intermark has." Pier 1 Chairman Clark Johnson says he doesn't know what Intermark's intentions are.

Before it's here, it's on the Bloomberg Terminal.