Back in February, Pier 1 Imports (NASDAQ: PIR) announced that it would close up to 125 underperforming stores, depending on its ability to renegotiate leases with landlords.
A month and a half later, the tough economy is paying off for Pier 1 -- at least in its efforts to negotiate with landlords. The company announced yesterday that it will close fewer than 80 stores -- a drop of at least 30% from the original number.
The reason for the change is clear: The horrific retail environment put Pier 1 in a very strong bargaining position. If the landlords had turned down Pier 1's requests for lease modifications, the company would have left them with vacant stores that they'd have little hope of filling anytime soon. If they all played hardball, Pier 1 would likely be headed for bankruptcy (which it still could be).
On the operational front, things are still looking bleak. Same-store sales were down 9.7% for quarter ended February 28, and margins were crushed by aggressive discounting.
Much of that can be blamed on the weak economy, but lower-cost big-box competitors also pose a threat to Pier 1 that goes beyond the cyclical. The company's deteriorating balance sheet threatens its ability to compete.
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