The Ratings Game: Optimistic Pier 1 analysts don’t budge, even after gloomy earnings

In its fiscal first-quarter earnings, Pier 1 Imports Inc. reported a loss per share, a sales decline, and lowered its guidance, but analysts are still finding bright spots in this gloomy report.

“We were discouraged by Pier 1 Imports’ Q1’16 ‘miss and lower,’ which we believe indicates management needs to go ‘back to the drawing board’ to formulate an effective turnaround strategy,” said BB&T Capital Markets in a Thursday note. “All that said, given the recent stock underperformance and the fact liquidity is not currently an issue in our opinion, we believe our hold rating remains appropriate.”

Pier 1 PIR, -5.51%   reported a loss of 7 cents per share, missing the FactSet consensus for 5 cents. Revenue totaled $418.4 million, down from $436.9 million and missing a FactSet estimate of $420 million.

The company now expects fiscal second-quarter per share results in the range of a loss of 6 cents to breakeven, compared with a previously estimated range of a loss of 2 cents to earnings of 2 cents. Same-store sales for the quarter are expected to be in a range of a 1% decline and 1% growth, compared with a range of flat to 2% growth previously. And sales in the second quarter are expected to fall in a range of $417.1 million and $425.7 million, down from between $425.7 million and $434.3 million.

See also: Pier 1 Imports joins in weak retail results

“Our profitability in the first half of the year is largely being impacted by planned investments in marketing, a competitive promotional environment and the costs related to prior distribution center network inefficiencies,” said Jeffrey Boyer, chief financial officer at Pier 1, in a statement. “At the same time, soft store traffic continues to weigh on our performance.”

Still, the company’s executives are optimistic there’s a turnaround coming.

“We expect to pick up momentum in the second half of fiscal 2017 as key initiatives designed to drive sales and margins take hold and we move into our seasonally strong holiday period,” said Boyer.

The company’s chief executive, Alex Smith, was even more direct.

“Our brand is strong and our customers love us,” Smith said in a statement.

See also: Ikea recalls 29 million dressers, chests after 3 deaths

Analysts at Raymond James were just as optimistic, reaffirming a yearslong buy stock rating in a Thursday note, though lowering their price target to $8 from $9. Three years ago, the bank’s buy rating was accompanied by a $27 price target.

“The company is past the inventory and supply chain issues, but now faces the challenge of increasing sales,” Raymond James wrote.

Credit Suisse analysts were more subdued in their Thursday note but still found a glimmer of hope.

See also: Bed Bath & Beyond’s latest acquisition comes under analyst scrutiny

“The key investment consideration is whether Pier 1 can effectively strike a balance between sales and margins, in an environment where demand seems to be moderating and competition increasing,” the bank wrote. “We see positive offsets in operations improvements, and easy comparisons. We also believe increased marketing and customer relations management work will help on the top line, as declining traffic and mindshare [brand awareness] have been major contributors to Pier 1’s lower comps in our view.”

The bank rates Pier 1 shares neutral and lowered its price target to $4.50 from $5.

Pier 1 shares closed down 5.6% on Thursday, the lowest point since March 2. Shares are down 59.3% for the past 12 months. The S&P 500 is up 1.7% for the last 12 months.

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