Pier 1 Imports (NYSE: PIR) is moving up in the ranks of layoff kings by announcing that it will lay off another 10% of its "full time equivalent positions in its distribution center, home office, and field administration areas."

The layoffs could hit stores too. The company disclosed that it is negotiating with landlords in an effort to negotiate lower rent payments to help cope with its tanking sales. In the press release, Pier 1 noted that "The Company has begun negotiating with landlords to achieve rental reductions across the chain. These negotiations may lead to the execution of early termination agreements for up to 125 underperforming store locations, if rental reduction negotiations on those locations prove unsuccessful." That figure represents more than 10% of Pier 1's approximately 1,100 store base.

Analyst upgrades:

• Baird upgraded Regal-Beloit (NYSE: RBC) to Outperform from Neutral based on valuation and growth expectations.
• Black & Decker (NYSE: BDK) and Lennar (NYSE: LEN) were upgraded to Buy from Neutral at UBS based on valuation.
• Kroger (NYSE: KR) and Public Storage (NYSE: PSA) were added to Goldman's Conviction Buy List.
• CIBC upgraded Biovail (NYSE: BVF) to Sector Performer from Sector Underperformer.
• Abercrombie & Fitch (NYSE: ANF) was raised to Neutral from Underperform at Cowen.

Analyst downgrades:

• Merrill downgraded Campbell Soup (NYSE: CPB) to Neutral from Buy and expects marketing and promotional spending to limit earnings growth in 2009 and 2010. The firm lowered their target to $35 from $42.
• Mechel Steel (NYSE: MTL) was cut to Underweight from Equal Weight at Morgan Stanley to reflect declining coal demand.
  
• Friedman Billings downgraded shares of Legg Mason (NYSE: LM) to Underperform from Market Perform on liquidity concerns given the Legg Mason's leveraged balance sheet and falling EBITDA. The firm lowered their target to $7 from $11.

According to a number of studies, Wall Street's initial reaction to a proposed buyout is a good indication of whether a deal will pan out or not. So when Pier 1 Imports (NYSE: PIR) recently made an $88 million bid for Cost Plus World Markets (NASDAQ: CPWM), and the response from investors was immediately negative (the stock price fell 20%), it was probably telling.

I guess Pier 1 was listening. On Wednesday, the company said it was revoking its bid.

Funny enough, the CEO of Pier 1, Alex W. Smith, originally called the deal "compelling" and that it "would create significant value for the stakeholders of both companies."

Oops.

But now, according to Smith, it looks like the deal will be too expensive. After all, it appears that Cost Plus is going to fight.

Yet, why not try to fight back? Pier 1 does have some leverage. Plus, there are certainly cost synergies (basically, the industry really needs consolidation).

Then again, when it comes to Wall Street, sometimes it is easier to just give in.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

Pier 1 Imports (NYSE: PIR) withdrew its proposal to acquire Cost Plus (NASDAQ: CPWM).

Deutsche Bank has a Buy rating with a $7.25 price target on PIR.

PIR overall option implied volatility of 93 is above its 26-week average of 84 according to Track Data, suggesting larger price movement.

Volatility Index NASDAQ 100-VXN at 28.13; 10-day moving average is 26.27.

Things are getting hostile in the furniture business. That is, Pier 1 Imports (NYSE: PIR) has announced a $4 unsolicited bid for rival Cost Plus (NASDAQ: CPWM). That comes to about $88 million. On news of the deal, Cost Plus' shares rose 13% to $3.47.

Although, the folks at Cost Plus are skeptical, calling the deal "highly conditional." Of course, the board will meet to discuss the proposal.

With the recession and real estate bust, it's a good bet we'll see more consolidation in the furniture business. Simply put, it will be a way to cut capacity as well as reduce cost structures.

No doubt, Cost Plus will want to get a higher price, but in light of the challenging environment, that's probably going to be tough. Besides, Cost Plus and Pier 1 have many common shareholders, who may pressure for a transaction. What's more, Cost Plus's "poison pill" will expire on June 30th.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

Pier 1 Imports (NYSE: PIR) is North America's largest specialty retailer of imported decorative home furnishings and gifts. The firm offers a wide selection of furniture, lamps, vases, baskets, dinnerware, bath products, bedding accessories and other specialty products through more than 1,100 stores. Goods are imported from more than fifty countries. As much as three-quarters of the product assortment consists of items introduced by the chain within the preceding year. Bed Bath & Beyond (NASDAQ: BBBY) is a major competitor.

The company pleased investors last month, when it reported a fiscal Q3 loss of 11 cents per share and revenues of $374.2 million. Analysts had been looking for a loss of 24 cents and $374.6 million. Merchandise margins rose to 53% from 49.7% a year earlier and gross profit margins were 33.6% of sales, up from 30.9% a year ago. Analysts commented positively on the firm's cost-cutting efforts and on the high level of holiday traffic in the stores. Morgan Keegan upped the shares to "market perform". Wedbush Morgan boosted its rating to "buy" and issued a $7.50 price target.

The Wall Street Journal offered (subscription required) one of the first bullish pieces I've seen on Pier 1 Imports (NYSE: PIR) in a long time:

Nine months into his first year as chief executive officer, retailing veteran Alex W. Smith has cut costs and slowed the pace of sales declines at the Fort Worth, Texas, company. Adding impulse items such as Halloween merchandise to storefronts, scrapping television ads in favor of spunky and targeted mailings, and implementing other changes have produced what Mr. Smith has called "seedlings of success." ... Couple those positives with recent insider buying and a coming show-and-tell by management, and some fans see a compelling case for the stock to double or triple within a couple of years.

I'll believe it when I see it. Much though I love Pier 1, the store just isn't as unique as it once was. Big box competitors like Target (NYSE: TGT) are offering very, very similar stuff -- for a lot less money. The Pier 1 brand probably still has some value. But buyout rumors have been circling for years as the stock has declined and so far nothing has come of it. And let's face it: You can only close so many stores, and watch your sales plummet as margins decline for so long before your brand starts to lose some of its equity.

Back in June, I wondered whether some kind of partnership with Wal-Mart (NYSE: WMT) could be beneficial. Wal-Mart needs some way to compete with Target for more upscale buyers, and perhaps a less-expensive line of Pier 1 products could help Pier 1 boost its sales -- the downside of course would be further erosion of the brand's equity, but many big-name brands offer off-priced products through the big boxes.

Wal-Mart (NYSE: WMT) has been struggling to reinvent itself as something other than just "always low prices". The company's efforts at high fashion have flopped, and same-store sales have been disappointing of late. Meanwhile, Pier 1 Imports (NASDAQ: PIR) has just plain struggled to stay alive amid store closings, the shuttering of its catalog and web businesses, declining sales and the loss of profitability. The company's shares have sagged from a high of $25 in 2003 all the way down to the current price of $8.49, representing a market cap of $750 million.

The company is working hard to try to find some way to compete with lower-priced products and imitators. Wal-Mart's problem is that it lacks the brand that Pier 1 has. Rightly or wrongly, people just feel tacky shopping for home furnishings at Wal-Mart.

Remember how K-Mart scored a big hit with its line of Martha Stewart Living Products? I wonder if Wal-Mart could do the same, and possibly more, with some kind of strategic partnership with Pier 1. What if Wal-Mart signed a deal to brand its home goods department as Pier 1, and brought in some of the company's marketing and design people to give the department a chic makeover. I bet that an alliance with Pier 1 could, overnight, increase Wal-Mart's decor sales by at least 10%. While the alliance might not be great for the Pier 1 brand, the company is bleeding red ink and needs to find some way to save itself. They would have to at least consider it.

Wal-Mart needs to figure out how to Target (NYSE: TGT) the more upscale consumer its main competitor has so successfully reached, and an alliance with Pier 1 seems like it could be one way to do that.

These are tough times for retail sellers of home furnishings and decorative products. Take a look at the five-year charts for Bombay Company Inc. (NYSE:BBA) and Pier 1 Imports (NYSE:PIR), two of the leaders in the category: