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Pier 1 Imports could close as much as 15% of its brick-and-mortar footprint

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Pier 1 Imports could close as much as 15% of its brick-and-mortar footprint

Pier 1 Imports Inc. could close a significant portion of its store portfolio as part of its 2020 action plan, designed to cut costs and boost performance in an effort to "get the business back on track," the company's interim CEO, Cheryl Bachelder, said during its second-quarter earnings call.

The home-furnishings retailer continues to work with A&G Realty and hold active discussions with landlords to address rent expense issues and determine its ideal store footprint for the future. As a result of its efforts, Pier 1 identified 70 stores it plans to close in its 2020 fiscal year. That number could grow to as high as 15% of the retailer's total 951-store portfolio should it miss its performance goals and sales targets.

Pier 1 has steadily trimmed its store portfolio in recent years, though until now, store closures came at a moderate pace. The retailer closed 31 stores in its 2019 fiscal year, and it has closed 22 stores through the first half of its 2020 fiscal year. Pier 1's fiscal year ends on the Saturday closest to Feb. 28 each year.

U.S. real estate investment trusts have fairly limited exposure to Pier 1, with only two shopping center REITs and one industrial REIT reporting the retailer as a top tenant in their second-quarter financials.

SITE Centers Corp. had 25 leases with the retailer as of June 30. Nine of the leases are at properties wholly owned by SITE Centers, and the 16 additional leases are at properties that SITE Centers has partial ownership in through a joint venture. The 25 leases aggregate roughly 261,000 square feet, and SITE Centers' pro rata ownership is approximately 130,000, or 0.5% of the REIT's total portfolio.

Kimco Realty Corp. reported 30 leases with the retailer as of June 30, totaling 229,000 square feet. The leases aggregated to $5.3 million in annual base rent, or 0.5% of Kimco's total portfolio.

Warehouse landlord First Industrial Realty Trust Inc. also reported Pier 1 as a top tenant in its second-quarter financial supplement. First Industrial leased 644,000 square feet of industrial warehouse space to the retailer at quarter-end, roughly 1.1% of its total portfolio.

Pier 1's same-store sales and net income have steadily declined since 2016, with a net loss of $198.8 million for its 2019 fiscal year, stemming from an 11% decline in same-store sales. The trend continued throughout the first half of its current fiscal year, logging a net loss of $182.3 million and same-store sales sliding 13.1%.

S&P Global Market Intelligence's Fundamental Probability of Default Model — a model that provides a fundamentals-based view of a company's credit risk by assessing its business and financial risks using inputs such as liquidity, profitability, company competitiveness as well as industry and macroeconomic risk — scored Pier 1 at a 20% probability of default within the next 12 months, a corresponding credit score of ccc. The model does not take into account Pier 1's ongoing efforts or future plans to improve its profitability.

S&P Global Ratings downgraded the retailer to CCC- with a negative outlook in April.

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This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.