New York, NY, May 2, 2006--Pier 1 Imports Inc., shares slumped on Monday, weighed by a bearish note from Lehman Brothers saying sharply higher energy prices would pressure the retailer's budget-minded customers.
Shares of the furniture and home accessories company slid 48 cents, or 4 percent, to $11.49 in afternoon trading on the New York Stock Exchange.
"Given the demographics of the targeted Pier 1 consumer, we believe higher gas prices could limit spending levels and further impact comparable sales," Lehman Brothers analyst Alan Rifkin said in a client note.
Gas prices have climbed 30 percent so far this year and over the year-ago period to an average price of $2.96 per gallon, Rifkin wrote. "With gas prices already nearing the post-summer peak from last year, there is real concern that gas prices will be significantly higher than what we saw last year," Rifkin added.
The investment bank also cut its rating on Pier 1 to "Underweight" from "Equal Weight."
Lehman also attributed the downgrade to weak same-store sales trends at the company. Same-store sales, or sales in stores open at least one year, are a closely watched indicator of retail performance. Pier 1 has posted negative comparable sales in 31 of the last 39 months since the start of 2003, Rifkin said.
"Given the numerous marketing, merchandising and promotional efforts that have taken place over this time, we firmly believe this continued deterioration in same-store sales exemplifies a much deeper issue at the company," he added.
A new catalog launched in the fall of 2005 has failed to show signs of driving customer traffic. Declining purchases from holders of Pier 1's private label credit card since 2001 also signal that loyalty of Pier 1's most faithful customers appears to be declining, Rifkin wrote.
Pier 1's stock has climbed about 33 percent so far this year. It hit a 52 week low of $8.50 on Jan. 4, but has risen in recent months amid speculation the retailer could be taken private. However, Lehman's Rifkin said Pier 1 was not a likely acquisition target, since it recently agreed to a convertible bond sale.
