Pier 1 Shows It Doesn't Deserve Cost Plus (PIR, CPWM)

Pier 1 Imports Inc. (NYSE: PIR) is seeing its stock butchered by more than 16% in the first 30 minutes of trading this morning and it has already surpassed its average daily trading volume.  The company’s losses did narrow from last year but fell short of estimates.  The loss was -$0.37 EPS on a 13% drop in revenues to about $310 million, while First Call forecasts were -$0.15 EPS on $338 million in revenues.  The company’s same store sales were -5.4% for the period on slow March and April traffic.

Pier One also noted that it sees a slight negative to slight positive for its same store sales.  It also said it expects a slight positive earnings for its fiscal 2009, with the caveat of holiday sales living up to the company’s expectations.  Wall Street isn’t a believer, at least it doesn’t seem that way since its own internal track record has been a poor one for some time.   

This should effectively kill its unsolicited proposed buyout offer chances for Cost Plus Inc. (NASDAQ: CPWM) coming under the Pier One umbrella.  If Pier One wants the company they are now likely going to have to come up with a cash component for the merger to where it is as close to a no-lose situation for Cost Plus shareholders.  The 0.6 shares of Pier 1 would barely be $3.05 per Cost Plus share based upon a $5.08 Pier One stock price.

This shouldn’t be interpreted that Cost Plus has done a great job or that it will do a great job.  Much of the issues that hurt Pier 1 are the same issues that hurt Cost Plus.  But shareholders over at Cost Plus are likely going to roll the dice rather than accept a take-under buyout after feeling this much pain.

Pier One shares were at north of $8.00 even in mid-May and shares dropped from $6.67 to $5.26 when it announced its unsolicited offer for Cost Plus.  Cost Plus shares are at $3.40 after today’s open.  Perhaps both companies need to hear the old saying "Physician, heal thyself."

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Jon C. Ogg
June 19, 2008