Dive Brief:

• Pier 1 on Wednesday reported that third quarter 2018 net sales fell 1.4% to $469.2 million from $475.9 million in the same period last year. Same-store sales fell 0.7%, in part from an approximate 100 basis-point hit from hurricanes in Texas and Florida.

• E-commerce sales penetration reached 26% in the quarter, up from 20% last year, the company said. Taking into account e-commerce orders placed in or picked up in store, some 90% of the company’s third quarter fiscal 2018 net sales directly touched a store, according to a press release. Inventory is down 11% from a year ago, the company said.

• Earnings reached 9 cents per share, down from 17 cents per share (22 cents adjusted) in the year-ago quarter. Gross profit in the quarter totaled $176.7 million, or 37.7% of net sales, down from $196.4 million, or 41.3% of net sales, in the same period last year. Third quarter merchandise margin (adding back delivery and fulfillment net costs and store occupancy costs to gross profit) totaled $269.0 million, or 57.3% of net sales, down from $286.4 million, or 60.2% of net sales a year ago, due to heavier discounting.

Dive Insight:

Pier 1’s troubles haven’t eased this month, CEO Alasdair James told analysts on Wednesday, according to a conference call transcript from Seeking Alpha. In light of the retailer’s traffic and sales declines in the first two weeks of December, the company has "substantially" lowered its guidance for the fourth quarter and the full year, he said.

For the holiday quarter, Pier 1 now expects same-store sales to fall 1.5%-3.5% and net sales growth to be down to between 1%-3%. With markdowns expected to continue, the merchandise margin will be approximately 54%, the company said on its call. For the full year, the company expects net sales to approximately flat and merchandise margin of to be about 56.5%.

The retailer is feeling pressure from its rivals, he also said. "Our merchandise is not resonating well enough with the customer to overcome the considerable marketing investments and value driven messaging of our competitors," James told analysts, though he also said that the company’s "declining performance is due to a combination of factors but it is internally and externally driven."

Grom agreed, telling Retail Dive on Wednesday that the weakness in Pier 1’s business "appears more structural in nature, including significant brand perception issues and heightened competition, particularly from digitally native players (and not just Wayfair)."

There are both near-term and long-term concerns, according to Gordon Haskett analysts, including that the troubles appear to be company-specific and not just a factor of external forces. "It’s hard to envision [same-store sales] showing meaningful improvement until late FY18," Grom warned. "Over the long term, the pathway for improved top-line performance …looks opaque and will come at the expense of significant cost pressures — leading to potentially negative margins in 2018 (and beyond). All told, we want to root for new CEO Alasdair James, but he has been dealt a very difficult hand."

James himself said that the company is moving "as quickly as possible to facilitate change" but said he believes the company’s omnichannel approach, which seeks to leverage its stores for both in-store and e-commerce sales, is the right one. The company is moving forward with a previously outlined three-year game plan, having completed the first phase, a thorough brand consumer segmentation and operational analysis.

"I'm pleased to tell you that our findings confirm we're on the right strategic course with the focus areas I remunerated last quarter," he said. Those include, refining Pier 1’s brand positioning to become more relevant to a broader group of consumers while also improving its value proposition, reinventing marketing programs to support its "refreshed brand DNA," improving supply-chain sourcing and inventory management to reduce costs and drive efficiency, bolstering IP capabilities and bringing great automation to the business and improving of the effectiveness of promotional programs.

The retailer is in need of top leaders, including a permanent CFO, and that search is going well, he said. The company is looking for a new marketing chief to replace marketing Executive Vice President Eric Hunter, who is leaving next week. The retailer on Wednesday also announced the hire of William H. Savage to the newly created position of executive vice president of global sourcing. Savage has retail and sourcing experience from his positions at Tesco, Walmart, Sears and Kingfisher, and most recently as president of Sears’s home division, where he was credited with driving sales and profit improvement, reducing expenses and lowering inventory levels, the company said.