Pier 1 Looks Into The Abyss (NYSE: PIR)

For a company whose shares have traded as high as $500 (including reverse splits), it’s almost unimaginable that they’d someday trade for $5. I say almost because that’s what’s happened to shares of Pier 1 Imports (NYSE: PIR) twice in the past 20 years. While it's given investors some wild rides over the years, it’s struggled to find a consistent pace that allows it to just grind away. The company’s Q3 earnings report on Monday painted such a picture.

Things must be pretty grim in the Fort Worth offices of the home furnishings company as EPS came in deep in the red at -$14.15 while revenue tanked over 13% year on year. Comparable sales were also down an ugly 11% year on year. These numbers compounded the concerns raised from previous earnings reports, for example, the Q2 release in September which showed the company’s margins plummeting. Q2 EPS showed an eye-widening loss of $24.29 while revenue shrank 14%, both figures year on year.

Management Initiatives

Management was proactive with Monday’s release and announced fresh measures to turn the ship around; 450 stores will be shut in 2020 as they scramble to save costs and cut dead weight. It has yet to be confirmed how this will impact employee numbers but Bloomberg reported that up to 40% of the company’s HQ staff were at risk of being let go. Unsurprisingly, the company has also drawn up bankruptcy contingency plans.

Pier 1 has been swimming against the tide for some time and to be fair they haven’t been idle. They brought on Guggenheim late last year as a financial advisor having previously engaged with AlixPartners and Credit Suisse. In November, CFO Robert Riesbeck was made group CEO as Cheryl Bachelder, who’d been appointed interim CEO in 2018, resigned. Prior to Bachelder, Pier 1 had gone through 2 other CEOs since 2016. Shares gained almost 5% on November’s news and were trading over $7 a share at the time. But they’ve fallen almost 35% in value since then as Wall Street continues to lose patience and it’s hard to blame them. It’s been a tough year for many brick and mortar retailers as they struggle with the move to e-commerce amid intense competition from Amazon (NASDAQ: AMZN). But few have had it as bad as Pier 1. Bear in mind that prior to last April’s 1-for-20 reverse stock split, Pier 1 was a penny stock and trading for less than $1 a share.

Technically Tradeable?

Maybe that helps explain how fast shares can run once they get a bit of momentum and for the technical trader, there’s no doubt the stock has a habit of presenting some enticing setups. Even in the midst of the 98% decline in the share price over the past 3 years, there have been several ferocious dead cat bounces. After four weeks of bouncing along with support in May 2018, shares popped 45%. They consolidated along with support in December 2018 before ripping 500% higher over the next two months. Same thing last August, shares started to bottom out around $3 as the bears and sellers took a breather then jumped nearly 300% in 6 weeks before tailing off and resuming the downward trend.

The stock touched that same support line at $3 briefly this week and we can see on the monthly chart that this was also rock-solid support for the stock back in 2009. Interestingly enough, that bounce off support heralded a 9000% rally over the next four years and while it may be a bit too much to expect the same this time, there’s no doubt that the stock is alluring for technical traders who can stay nimble. With RSI below 30, indicating oversold conditions, it could be worth a long shot as things can only get so much worse for now. Any brightening of the situation, if for only a few days or weeks, could light a fire under the shorts who control over 25% of the float.

Taking the longer-term view, however, it must be noted that there’s only so long a company can keep its head above water when it’s posting double-digit percentage declines in revenue alongside deeply negative EPS numbers. For now, Pier 1 is looking into the abyss and there's nothing staring back at them.