Forget About Pier 1 Imports, Consider Restoration Hardware or Williams-Sonoma Instead

PIR data by YCharts.

Pier 1 Imports (NYSE: PIR) crashed by more than 13% on Thursday after reporting disappointing financial performance for the first quarter of fiscal 2015. Investors could be overreacting to the negative news in the short term, but alternatives such as Restoration Hardware (NYSE: RH) and Williams-Sonoma (NYSE: WSM) nonetheless look like much stronger names in the home-furnishings sector.

Disappointing performance Pier 1 Imports announced that total sales during the quarter ended on May 31 increased 6.1% to $419.1 million, versus $394.9 million during the same period in fiscal 2014; this came in below analysts' expectation of $422.8 million. Comparable sales increased 6.3%, which management attributed to increases in total brand traffic, improved conversion, and higher average ticket price.

Gross profit was roughly flat during the quarter. However, gross profit margin as a percentage of sales declined to 40%,compared to 42.4% in the year-ago period,due to pricing promotions.

Net income declined from $20.3 million in the first quarter of 2014to $15 million, and net earnings per share of $0.16 came in materially below the forecast of $0.20 per share.

Adding to the negativity, the company reduced its guidance for the rest of the year. Earnings per share are expected to be in the range of $1.14 to $1.22, versus a prior guidance of between $1.16 and $1.24.

CEO Alex W. Smith said in the earnings press release that the downward guidance adjustment was due to harsh industry conditions: "The retail environment remains highly promotional and is pressuring gross profit in the near-term. As a result, we are adjusting our full-year earnings forecast accordingly."

The retail business has been notoriously difficult across many different categories lately, so margin pressure should come as no big surprise. However, it's also worth noting that Restoration Hardware and Williams-Sonoma recently reported substantially better performances than Pier 1.

Restoration Hardware and Williams-Sonoma not only operate in the same industry, but they also target a similar clientele as Pier 1 Imports. When it comes to the high-end furnishing market, these two companies seem to be gaining market share and stealing customers from Pier 1.

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Forget About Pier 1 Imports, Consider Restoration Hardware or Williams-Sonoma Instead