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[Quoted directly from the 200710-K. See included Balance Sheet, Income Statement, and Statement of Cash Flows] On March1, 2008, the Company operated 1,034 Pier 1 Imports stores in the United States and 83 Pier 1 Imports stores in Canada. The Company had three remaining franchise agreements to operate stores in the United States that expired in June 2007. During fiscal 2008, the Company supplied merchandise and licensed the Pier 1 Imports name to Grupo Sanborns and Sears Puerto Rico, which sold Pier 1 Imports merchandise primarily in a “store within a store” format in 31 Sears Mexico stores and in seven Sears Puerto Rico stores. Pier 1 Imports stores in the United States and Canada average approximately 9,900gross square feet, which includes an average of approximately 7,900square feet of retail selling space. The stores consist of freestanding units located near shopping centers or malls and in-line positions in major shopping centers. Pier 1 Imports operates in all major U.S.metropolitan areas and many of the primary smaller markets. Pier 1 Imports stores generally have their highest sales volumes during November and December as a result of the holiday selling season. In fiscal 2008, net sales of the Company totaled $1.5billion.

Pier 1 Imports offers a unique selection of merchandise consisting of more than 4,000 items imported from over 50 countries around the world. While the broad categories of Pier 1 Imports’ merchandise remain fairly constant, individual items within these product categories change frequently in order to meet the changing demands and preferences of customers. The principal categories of merchandise include the following:

DECORATIVE ACCESSORIES— This product group constitutes the broadest category of merchandise in Pier 1 Imports’ sales mix and contributed approximately 63% to Pier 1 Imports’ total U.S.and Canadian retail sales in fiscal year 2008, 62% in fiscal year 2007 and 60% in fiscal year 2006. These items are imported primarily from Asian and European countries, as well as some domestic sources. This category includes decorative wood accessories, lamps, vases, dried and artificial flowers, baskets, wall decorations, ceramics, dinnerware, bath and fragrance products, candles, bedding, epicurean products, and seasonal and gift items.

FURNITURE— This product group consists of furniture and furniture cushions to be used in living, dining, kitchen and bedroom areas, sunrooms, and on patios. This product group constituted approximately 37% of Pier 1 Imports’ total U.S.and Canadian retail sales in fiscal year 2008, 38% in fiscal year 2007 and 40% in fiscal year 2006. These goods are imported from a variety of countries such as Italy, Malaysia, Brazil, Mexico, China, the Philippines and Indonesia, and are also obtained from domestic sources. The furniture is made of metal or handcrafted natural materials, including rattan, pine, beech, rubberwood and selected hardwoods with either natural, stained, painted or upholstered finishes.

Pier 1 Imports merchandise largely consists of items that feature a significant degree of handcraftsmanship and are mostly imported directly from foreign suppliers. For the most part, the imported merchandise is handcrafted in cottage industries and small factories. Pier 1 Imports is not dependent on any particular supplier and has enjoyed long-standing relationships with many vendors and agents. The Company believes alternative sources of products could be procured over a relatively short period of time, if necessary. In selecting the source of a product, Pier 1 Imports considers quality, dependability of delivery, and cost. During fiscal 2008, Pier 1 Imports sold merchandise imported from over 50 different countries with slightly more than one-third of its sales derived from merchandise produced in China. The remainder of its merchandise is sourced from Indonesia, India and other countries around the world.

ABBREVIATED REPORT:

  1. Executive Summary
  2. Strategic Background
  3. Industry Study
  4. Issues and Problems

Report Appendix: Examine the spreadsheet and find the 2008 10-K for Pier 1 Imports. Update the spreadsheet for the data for the year ending February 28, 2009.

  1. Provide analyses of whether or not the Pier 1 Imports has sufficient liquidity, solvency, earnings, and growth for 2008. Determine the amount of working capital for the past three years. Is the financial position improving or deteriorating and why?
  2. Examining the income statement, how much of the change in operating income relates to a change in gross margin (after cost of sales and occupancy) and how much is attributable to the efficiency of operations? What has been the impact of the costs of occupancy (Hint: search the 10-K for “occupancy”)?
  3. Do the levels of inventories seem reasonable? Why?
  4. How much of the current liabilities are accrued as of February 28, 2009? What are accrued liabilities? Give two examples.
  5. What is a “common size” or vertical analysis? Give an example of one common size item from the financial report of Pier 1 Imports that seem to be an issue.
  6. What would be the amount of the cash basis income for the year ending February 28, 2009? What would have been the impact on cash basis income of holding inventories constant for this one year?
  7. Gift cards and certificates are listed on the balance sheet as a current liability. Why?
  8. What was the amount of their income taxes expense for fiscal 2008? How much in income taxes did they actually pay? Why is there a difference?
  9. There is $106.841 million in retained earnings. What is retained earnings? Why has the amount gone down over the past several years?
  10. The instructor noted two major strategies for companies in mature markets, such as Pier 1 Imports. Which strategy does the Company appear to be following and why?

10-K