UPDATE: April 26, 2019: In a statement emailed to Retail Dive, Pier 1 stated that it has, "developed an action plan that the Company believes will provide sufficient liquidity to implement the strategic initiatives that are part of its new fiscal 2020 plan. The Company is not in default under any of its debt agreements, and those agreements do not contain any financial performance covenants. The term loan that S&P says Pier 1 'could face challenges in refinancing' is not due for two years... We have acknowledged the execution issues under the prior management’s "New Day" plan and have since put in place a capable senior leadership team to develop and implement a new fiscal 2020 plan to reset and rebuild our business. ... While Pier 1 regularly engages with all of its stakeholders, the Company is not currently contemplating nor discussing any debt exchange. We remain confident our fiscal 2020 action plan will create the runway to return Pier 1 to long-term health and sustainable financial performance." The company further stated that it believes it will be positioned to deliver between $30 to $40 million of net income and $45 to $55 million of EBITDA in fiscal year 2020.
Pier 1 Imports on Wednesday suffered a downgrade from S&P Global Ratings, which lowered issue-level rating on the company's senior secured term loan, citing "operating trends [that] continue to deteriorate significantly with very high levels of cash burn and negative EBITDA, which is a trend that we expect to persist through the coming year."
"The negative outlook reflects that we do not see a path for Pier 1 to return to profitability in the coming six months to one year, even when factoring in the full impact of planned performance improvements," according to an S&P note emailed to Retail Dive.
Pier 1 didn't immediately return Retail Dive's request for comment. Its long-term debt by the end of last fiscal year had swollen to $245.6 million from $197.9 million the previous year, the company reported earlier this month.
Pier 1's troubles continue apace. In its most recent quarter, the furniture and home goods retailer reported that net sales fell 19.5% to $412.5 million and store comps tumbled 13.7%. Profits are elusive as net income of $15.1 million in the year-ago quarter swung to a $68.8 million net loss in the fourth quarter.
Turmoil in its executive leadership has also continued, with Deborah Rieger-Paganis earlier this month replacing Nancy Walsh as interim CFO. Among other shifts, CEO Alasdair James also stepped down late last year, replaced in the interim with board member Cheryl Bachelder.
That adds to the company's challenges, according to S&P. "The negative outlook on Pier 1 reflects our view that some form of restructuring is increasingly likely given its accelerated cash burn, the deterioration of its profitability, and the challenges associated with rapidly executing its turnaround plans under a new management team," per Wednesday's note.
The company in January faced NYSE delisting as a result of no longer being in compliance with listing criteria, which requires an average closing share price of at least $1.00 over a 30 trading-day period. And last month, Pier 1 lenders organized amid the deteriorating financial situation, and the company hired attorneys and consultants, including Kirkland & Ellis.
Moody's Investors Service in March also downgraded the retailer and Moody's VP-Senior Analyst Raya Sokolyanska noted in comments emailed to Retail Dive earlier this month that "its ability to turn around earnings to a level that supports a timely and economical refinancing of its term loan due 2021 remains highly uncertain," though she also said that its liquidity over the next 12 months "should be adequate, mainly due to availability under the company's $400 million asset-based revolver and a lack of maturities until the term loan due date."
S&P analysts said they could raise their ratings on Pier 1 "if its operating prospects improve significantly and on a sustained basis, leading us to believe that the company will repay the 2021 term loan facility in accordance with its original terms."
Bachelder earlier this month expressed confidence in the company's ability to do so. "We've moved quickly to assess the state of the business, and we have a clearly defined action plan that's based on rigorous analysis," she told analysts during an April 17 conference call, according to a Seeking Alpha transcript. "We're restoring core capability across the organization, and we are intensely focused on moving this brand to positive sales. We have a clear line of sight to margin improvement and cost reduction opportunities."