Cramer: ‘Pier 1 Is Back’
Homewares retailer Pier 1 Imports is up over 500% in the past year, and the company recently validated the move. On April 8, Pier 1 missed the Street’s expectations by a penny, but the report was “chock full of positives that amount to … proof of life,” Cramer said Tuesday.
“Or more importantly – one of the most difficult things to do – proof of a turnaround,” he said.
Since 2006, PIR has failed to break through $10. But that level may be breached now that management is closing underperforming stores, improving existing locations and bringing in better merchandise. And this comes on top of the turn already happening in the economy, as consumers are more willing to spend their cash on papasan chairs and high-tech toasters.
Cramer wanted viewers to consider buying Pier 1, but is this the right level? Again, the stock’s up 507% and just $1 off its 52-week high. One of his favorite technical analysts recommends waiting for a pullback to $7.40, citing a great risk-reward at that price and the potential for a bounce. But Cramer wondered, given the growing strength of this company, whether PIR would dip low enough to get in at that level.
CEO Alex Smith, since joining Pier 1 from TJX’s Marmaxx division three years ago, has closed stores – 112 between 2007 and 2009 – and negotiated lower rates on still-existing outlets, boosting their profitability. He also upped the number of merchandise buyers, which allowed each one to focus on their respective product categories and improve the store’s overall selection. Smith has shifted his furniture products away from slow-moving, high-ticket items, too, focusing instead on smaller, less expensive pieces that sell more quickly. His latest venture is the improvement of the stores themselves, changing lights, fixtures and infrastructure to better show off Pier 1’s wares.
These moves translated into 6.5% same-store sales growth for the fourth quarter and a 19.4% jump in March alone. Customer traffic is up, as is the average ticket size and Pier 1’s gross margins. The company also boasts a much better balance sheet – just $35 million in debt compared to $190 million in cash at the end of 2009. And this is only part of the reason why Cramer doubted PIR would pull back.
The other part is that Wall Street isn’t sold on the stock yet. Of the six analysts covering it, there are still two “sells” and one “hold.” That leaves plenty of room for upgrades that would take the share price higher. Not to mention, the stock trades at just 14.5 times 2011 earnings compared to 18.5 times for Williams-Sonoma , meaning PIR is cheap. Cramer recommended going for Pier 1 at $8, or even $8.25, if you can get it, because he thinks the stock is “on its way to double-digit territory.”
“Pier 1’s back,” Cramer said. “You can’t wait for the stock to act as if it isn’t. You’ll miss the big turn.”
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