Pier 1 plans to shut half its stores

Pier 1 Imports Inc. is planning to dismiss about 40% of its headquarters staff and shut about 450 stores in an attempt to overhaul the troubled home furnishings business.

The retailer has drafted a bankruptcy plan, and last month it made a presentation to creditors that envisioned a smaller post-bankruptcy company with about $900 million in annual sales, according to people with knowledge of the matter. It’s also canceling some orders with its suppliers and has held talks with current lenders about providing Chapter 11 financing, said the people, who asked not to be identified because the process was private.

The company’s shares dived as much as 30% on the news and were down about 17% at $5.18 when trading was halted. Pier 1 then reported a wider quarterly loss and confirmed it would reduce staff, shut almost half its stores and close some distribution centers. The headquarters staff cuts affect about 300 employees, the people said.

A representative for Pier 1 declined to comment, but the company acknowledged in its quarterly regulatory filing that there’s substantial doubt about its ability to stay solvent. The Chapter 11 process allows a company to keep operating while it works out a plan to turn around the business and pay its creditors.

“As Pier 1’s losses deepen, the planned large-scale store closures and cost cuts will likely be insufficient to turn around the business in time to address the company’s looming debt maturities, making restructuring or bankruptcy highly likely scenarios,” Raya Sokolyanska, an analyst at Moody’s Investors Service, said in an emailed statement.

Pier 1 has posted multiple quarters of declining sales and losses as it faces a raft of new competitors. On Monday, it reported that its third-quarter loss widened to $59 million from $50 million after sales declined 13% to $358.4 million.

The Fort Worth company is led by Robert Riesbeck, a turnaround manager named as chief executive in November. He’s cutting expenses by about half, including canceling some existing orders to align Pier 1’s buying with plans for a smaller store base, one person said.

Pier 1 had 942 stores in the United States and Canada as of Nov. 30, and 4,000 employees as of March.

Shoppers have been defecting to new e-commerce players such as Wayfair Inc. and conventional giants such as Walmart Inc. that have expanded in the category.

Clearing out unsold goods depressed sales last year, but the early response from customers to its new merchandise was positive, the person said. The company posted $1.55 billion of revenue in its fiscal year that ended March 2, down 14% from the previous fiscal year.

Pier 1’s term loan due in 2021 was quoted around 27 cents on the dollar, a sign that creditors expect to take heavy losses if the company files for court protection.

Coleman-Lochner, Townsend and Doherty write for Bloomberg.