Pier 1 slides on downgrade -- more trouble to come?

Shares of Pier 1 Imports (NYSE: PIR) tumbled more than 8% on Monday after Morgan Keegan analyst Laura Champine downgraded the stock to Underperform from Market Perform. She wrote in a note: "We are skeptical about Pier 1's ability to drive traffic without discounting, and our recent checks at Pier 1 suggest that the company is still using aggressive promotions to clear inventory ... If the company is being forced by a weakening consumer to stray from its plan of reducing store-wide markdowns, the margin impact could be extremely detrimental to earning."

Pier 1's struggles have been well-documented. The company is attempting a dramatic turnaround under the leadership of a new CEO after years of underperformance and tough competition from lower cost providers of similar products like Target (NYSE: TGT) and Wal-Mart (NYSE: WMT).

Turnarounds are always tough; most of them have a way of not really turning around at all. A weak economy and cautious consumer spending could be enough to make a very tough turnaround nearly impossible.

It appears that more than a few investors are betting this turnaround will end badly -- roughly 20% of the float is short.