Home furnishings retailers present investors with opportunities for profit in a lackluster retail environment, as low housing turnover coupled with increasing consumer confidence creates demand for goods to spruce up existing homes, says Anthony C. Chukumba, Senior VP and Senior Equity Research Analyst at BB&T Capital Markets.

“A sluggish housing market may actually help the home furnishings retailers to some extent. If you are a homeowner who is currently under water on your mortgage, clearly you are not going to be moving anytime soon. It is also a lot more difficult to borrow against the equity in your home,” Chukumba said.

Chukumba likes Pier 1 Imports Inc. (PIR), a turnaround story in the home furnishings retail space. In the past few years, PIR shut down and sold noncore concepts, cut costs and overhauled its merchandise. It also announced a $100 million share repurchase program, which Chukumba says displays management’s confidence.

“Pier 1‘s sales per square foot are currently around $170, as compared to an all-time peak of $235 and a three-year goal of $200, which I think is conservative. I estimate that if the company gets back to $200 a square foot, Pier 1 would generate close to a midteens operating margin, as compared to 7.4% last year,” Chukumba said.

This entry was posted on Thursday, September 8th, 2011 at 11:12 am and is filed under General Investing. You can follow any responses to this entry through the RSS 2.0 feed.