PIER 1 IMPORTS INC/DE (Form: 10-Q, Received: 01/03/2013 11:19:21)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 24, 2012

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-07832

PIER 1 IMPORTS, INC.

(Exact name of registrant as specified in its charter)

Delaware

75-1729843

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

100 Pier 1 Place, Fort Worth, Texas 76102

(Address of principal executive offices, including zip code)

(817) 252-8000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ]. No [ ].

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ X ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer X		Accelerated filer
Non-accelerated filer	(Do not check if a smaller reporting company)	Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]

As of December 26, 2012, there were outstanding 105,819,676 shares of the registrant’s common stock, all of one class.

PIER 1 IMPORTS, INC.

INDEX TO QUARTERLY FORM 10-Q


PART I. FINANCIAL INFORMATION			Page

Item 1. Financial Statements

Consolidated Statements of Operations for the Three and Nine Months Ended November 24, 2012 and November 26, 2011			3

Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended November 24, 2012 and November 26, 2011			4

Consolidated Balance Sheets as of November 24, 2012, February 25, 2012 and November 26, 2011			5

Consolidated Statements of Cash Flows for the Nine Months Ended November 24, 2012 and November 26, 2011			6

Consolidated Statement of Shareholders’ Equity for the Nine Months Ended November 24, 2012			7

Notes to Consolidated Financial Statements			8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			11

Item 3. Quantitative and Qualitative Disclosures about Market Risk			19

Item 4. Controls and Procedures			19

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			19

Item 1A. Risk Factors			19

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			20

Item 3. Defaults upon Senior Securities			20

Item 4. Mine Safety Disclosures			20

Item 5. Other Information			20

Item 6. Exhibits			20

Signatures			21

PART I

Item 1.

Financial Statements.

PIER I IMPORTS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except per share amounts)

(unaudited)


	Three Months Ended						Nine Months Ended
	November 24, 2012			November 26, 2011			November 24, 2012			November 26, 2011
Net sales	$	424,527		$	382,699		$	1,153,260		$	1,056,854
Cost of sales		238,268			217,209			665,179			622,775

Gross profit		186,259			165,490			488,081			434,079
Selling, general and administrative expenses		139,244			127,514			367,596			342,416
Depreciation and amortization		8,192			5,104			21,936			15,171

Operating income		38,823			32,872			98,549			76,492
Nonoperating (income) and expenses:
Interest, investment income and other		(298	)		(3,238	)		(2,169	)		(8,441	)
Interest (income) expense		664			739			(629	)		2,279

		366			(2,499	)		(2,798	)		(6,162	)

Income before income taxes		38,457			35,371			101,347			82,654
Income tax provision		14,772			12,383			33,607			28,929

Net income	$	23,685		$	22,988		$	67,740		$	53,725

Earnings per share:
Basic	$	0.22		$	0.21		$	0.64		$	0.47

Diluted	$	0.22		$	0.21		$	0.62		$	0.47

Dividends declared per share:	$	0.04		$	0.00		$	0.12		$	0.00

Average shares outstanding during period:
Basic		105,419			108,713			106,601			113,767

Diluted		107,308			110,306			108,502			115,490

The accompanying notes are an integral part of these financial statements.

PIER 1 IMPORTS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)


	Three Months Ended						Nine Months Ended
	November 24, 2012			November 26, 2011			November 24, 2012		November 26, 2011
Net income	$	23,685		$	22,988		$	67,740	$	53,725
Other comprehensive income (loss)
Foreign currency translation adjustments		(21	)		(1,993	)		274		(2,142	)
Pension adjustments		494			250			985		752

Other comprehensive income (loss), net of tax		473			(1,743	)		1,259		(1,390	)

Comprehensive income	$	24,158		$	21,245		$	68,999	$	52,335

The accompanying notes are an integral part of these financial statements.

PIER 1 IMPORTS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands except share amounts)

(unaudited)


	November 24, 2012			February 25, 2012			November 26, 2011
ASSETS
Current assets:
Cash and cash equivalents, including temporary investments of $97,064, $248,264 and $136,765, respectively	$	120,788		$	287,868		$	179,296
Accounts receivable, net		34,979			16,282			26,561
Inventories		417,547			322,482			367,876
Prepaid expenses and other current assets		25,417			23,682			21,659

Total current assets		598,731			650,314			595,392
Properties, net of accumulated depreciation of $476,403, $461,390 and $458,375, respectively		136,736			103,640			87,029
Other noncurrent assets		71,963			69,409			30,405

	$	807,430		$	823,363		$	712,826


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	73,923		$	63,827		$	68,437
Gift cards and other deferred revenue		47,800			53,123			58,369
Accrued income taxes payable		16,689			16,759			11,731
Other accrued liabilities		114,628			111,679			115,342

Total current liabilities		253,040			245,388			253,879
Long-term debt		9,500			9,500			9,500
Other noncurrent liabilities		60,440			74,832			70,666

Shareholders’ equity:
Common stock, $0.001 par, 500,000,000 shares authorized, 125,232,000 issued		125			125			125
Paid-in capital		231,234			231,919			230,524
Retained earnings		517,732			462,751			347,538
Cumulative other comprehensive loss		(3,214	)		(4,473	)		(2,174	)
Less — 18,861,000, 15,512,000 and 15,574,000 common shares in treasury, at cost, respectively		(261,427	)		(196,679	)		(197,232	)

		484,450			493,643			378,781
Commitments and contingencies		-			-			-

	$	807,430		$	823,363		$	712,826

The accompanying notes are an integral part of these financial statements.

PIER 1 IMPORTS, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Nine Months Ended
	November 24, 2012			November 26, 2011
Cash flow from operating activities:
Net income	$	67,740		$	53,725
Adjustments to reconcile to net cash (used in) provided by operating activities:
Depreciation and amortization		27,537			23,078
Stock-based compensation expense		9,141			4,780
Deferred compensation		4,767			4,342
Amortization of credit card deferred revenue		(2,914	)		(15,625	)
Amortization of deferred gains		(3,284	)		(9,794	)
Change in reserve for uncertain tax positions		(7,266	)		152
Other		(1,495	)		(99	)

Changes in cash from:
Inventories		(95,065	)		(56,106	)
Proprietary credit card receivables		(7,653	)		(1,646	)
Prepaid expenses and other assets		(16,424	)		(15,031	)
Accounts payable and accrued expenses		8,401			12,668
Accrued income taxes payable, net of payments		(3,716	)		11,499

Net cash (used in) provided by operating activities		(20,231	)		11,943

Cash flow from investing activities:
Capital expenditures		(57,741	)		(40,359	)
Proceeds from disposition of properties		165			1,341
Proceeds from sale of restricted investments		1,238			423
Purchase of restricted investments		(3,178	)		(1,240	)

Net cash used in investing activities		(59,516	)		(39,835	)

Cash flow from financing activities:
Cash dividends		(12,759	)		-
Purchases of treasury stock		(89,747	)		(100,000	)
Proceeds from stock options exercised, stock purchase plan and other, net		15,173			8,814
Debt issuance costs		-			(3,097	)

Net cash used in financing activities		(87,333	)		(94,283	)

Change in cash and cash equivalents		(167,080	)		(122,175	)
Cash and cash equivalents at beginning of period		287,868			301,471

Cash and cash equivalents at end of period	$	120,788		$	179,296

The accompanying notes are an integral part of these financial statements.

PIER 1 IMPORTS, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED NOVEMBER 24, 2012

(in thousands)

(unaudited)


	Common Stock					Paid-in Capital			Retained Earnings			Cumulative Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholders’ Equity
	Outstanding Stock			Amount		Paid-in Capital			Retained Earnings			Cumulative Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholders’ Equity
Balance February 25, 2012		109,720		$	125	$	231,919		$	462,751		$	(4,473	)	$	(196,679	)	$	493,643
Net income		-			-		-			67,740			-			-			67,740
Other comprehensive income		-			-		-			-			1,259			-			1,259
Purchases of treasury stock		(5,299	)		-		-			-			-			(89,747	)		(89,747	)
Stock-based compensation		812			-		(1,104	)		-			-			10,245			9,141
Exercise of stock options, stock purchase plan and other		1,138			-		419			-			-			14,754			15,173
Cash dividends ($.12 per share)		-			-		-			(12,759	)		-			-			(12,759	)

Balance November 24, 2012		106,371		$	125	$	231,234		$	517,732		$	(3,214	)	$	(261,427	)	$	484,450

The accompanying notes are an integral part of these financial statements.

PIER 1 IMPORTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED NOVEMBER 24, 2012

AND NOVEMBER 26, 2011

(unaudited)

Throughout this report, references to the “Company” include Pier 1 Imports, Inc. and all its consolidated subsidiaries. The accompanying unaudited financial statements should be read in conjunction with the Company’s Form 10-K for the year ended February 25, 2012. All adjustments that are, in the opinion of management, necessary for a fair presentation of the consolidated financial statements contained in this report have been made and consist only of normal recurring adjustments, except as otherwise described herein, if any. The results of operations for the three and nine months ended November 24, 2012 and November 26, 2011 are not indicative of results to be expected for the fiscal year because of, among other things, seasonality factors in the retail business. Historically, the strongest sales of the Company’s products have occurred during the holiday season beginning in November and continuing through December. The Company conducts business as one operating segment. As of November 24, 2012, the Company had no financial instruments with fair market values that were materially different from their carrying values.

Note 1 – Earnings per share

Basic earnings per share amounts were determined by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share amounts were similarly computed, but included the dilutive effect of the Company’s weighted average number of stock options outstanding and shares of unvested restricted stock. Stock options for which the exercise price was greater than the average market price of common shares were not included in the computation of diluted earnings per share as the effect would be antidilutive. There were 328,000 and 2,723,000 stock options outstanding with exercise prices greater than the average market price of the Company’s common shares for the three months ended November 24, 2012 and November 26, 2011, respectively. There were 1,067,000 and 2,986,000 stock options outstanding with exercise prices greater than the average market price of the Company’s common shares for the nine months ended November 24, 2012 and November 26, 2011, respectively. Earnings per share for the three and nine months ended November 24, 2012 and November 26, 2011 were calculated as follows (in thousands except per share amounts):


	Three Months Ended				Nine Months Ended
	November 24, 2012		November 26, 2011		November 24, 2012		November 26, 2011
Net income, basic and diluted	$	23,685	$	22,988	$	67,740	$	53,725

Weighted average shares outstanding during period:
Basic		105,419		108,713		106,601		113,767
Effect of dilutive stock options		1,332		1,100		1,289		1,139
Effect of dilutive restricted stock		557		493		612		584

Diluted		107,308		110,306		108,502		115,490

Earnings per share:
Basic	$	0.22	$	0.21	$	0.64	$	0.47

Diluted	$	0.22	$	0.21	$	0.62	$	0.47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 2 – Stock-based compensation

For the three and nine months ended November 24, 2012, the Company recorded stock-based compensation expense related to stock options and restricted stock of $3,152,000 and $9,141,000, respectively. For the three and nine months ended November 26, 2011, the Company recorded stock-based compensation expense related to stock options and restricted stock of $1,440,000 and $4,780,000, respectively.

As of November 24, 2012, there was approximately $209,000 of total unrecognized compensation expense related to unvested stock option awards that is expected to be recognized over a weighted average period of 3.0 years and $16,857,000 of total unrecognized compensation expense related to unvested restricted stock that may be recognized over a weighted average period of 2.2 years, if certain performance targets are achieved.

Note 3 – Defined benefit plans

The Company maintains supplemental retirement plans (the “Plans”) for certain of its executive officers. The Plans provide that upon death, disability, reaching retirement age, or certain termination events, a participant will receive benefits based on highest compensation, years of service and years of plan participation. Benefit costs are determined using actuarial cost methods to estimate the total benefits ultimately payable to executive officers and this cost is allocated to the respective service periods.

The Plans are not funded and thus have no plan assets. The actuarial assumptions used to calculate benefit costs are reviewed annually, or in the event of a material change in the Plans or participation in the Plans. The components of net periodic benefit costs for the three and nine months ended November 24, 2012 and November 26, 2011 were as follows (in thousands):


	Three Months Ended				Nine Months Ended
	November 24, 2012		November 26, 2011		November 24, 2012			November 26, 2011
Components of net periodic benefits cost:
Service cost	$	338	$	280	$	1,015		$	839
Interest cost		184		195		557			584
Amortization of unrecognized prior service costs		102		102		307			307
Amortization of net actuarial loss		355		113		1,053			339
Settlement		-		-		(488	)		-

Net periodic benefit cost	$	979	$	690	$	2,444		$	2,069

Note 4 – Income taxes

During the second quarter of fiscal 2013, the Company reversed a portion of its reserve for uncertain income tax positions for which the statute of limitations expired. This adjustment resulted in an income tax benefit of $5,857,000 during the second quarter. In addition, the Company reversed $2,757,000 of accrued interest related to these uncertain tax positions.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note 5 – Subsequent Events

On December 14, 2012, subsequent to quarter end, the Company completed its $100,000,000 share repurchase program, which was announced on October 14, 2011. Under this program, the Company repurchased a total of 5,822,142 shares at a weighted average cost of $17.18 per share. On December 13, 2012, the Company announced that its Board of Directors has authorized a new $100,000,000 share repurchase program.

On December 13, 2012, subsequent to quarter end, the Company’s Board of Directors declared a $0.05 per share quarterly cash dividend on the Company’s outstanding shares of common stock, which reflects a 25% increase from the previous quarterly cash dividend. The dividend will be paid on January 30, 2013 to shareholders of record on January 16, 2013.

Note 6 – New accounting pronouncement

In June 2011, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income,” which amends current comprehensive income guidance. This accounting update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. Instead, the Company must report comprehensive income in either a single continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. The Company adopted ASU 2011-05 in the first quarter of fiscal 2013 and included two separate but consecutive statements.

PART I

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of financial condition, results of operations, and liquidity and capital resources should be read in conjunction with the Company’s consolidated financial statements as of February 25, 2012, and for the year then ended, and related Notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations, all contained in the Company’s Annual Report on Form 10-K for the year ended February 25, 2012.

Management Overview

Pier 1 Imports, Inc. (together with its consolidated subsidiaries, the “Company”) is one of North America’s largest specialty retailers of decorative home furnishings and gifts. The Company directly imports merchandise from many countries and sells a wide variety of decorative accessories, furniture, candles, housewares, gifts and other seasonal products in its stores and through the Company’s website, Pier1.com. The results of operations for the three and nine months ended November 24, 2012 and November 26, 2011 are not indicative of results to be expected for the fiscal year because of, among other things, seasonality factors in the retail business. Historically, the strongest sales of the Company’s products have occurred during the holiday season beginning in November and continuing through December. The Company conducts business as one operating segment and operates stores in the United States and Canada under the name Pier 1 Imports. As of November 24, 2012, the Company operated 1,061 stores in the United States and Canada.

In April 2012, the Company announced a new three-year growth plan designed to drive profitable top and bottom-line growth, expand market share, and increase shareholder value as the Company continues evolving into a multi-channel retailer. The plan includes building a best-in-class e-Commerce platform; strengthening the Company’s infrastructure through investments in technology, processes and systems; improving the Company’s store portfolio through refurbishments, remodels, new store openings and strategic relocations; investing $200 million in capital over the next three years; and returning value to shareholders through share repurchases and quarterly cash dividends. In conjunction with the new three-year growth plan, the Company established new financial targets which include achieving sales per retail square foot of $225 and operating margins of at least 12% of sales by the end of fiscal 2015. The Company also expects an online sales contribution of at least 10% of total revenues by the end of fiscal 2016.

At the end of July 2012, the Company successfully executed the on-time launch of its new e-Commerce enabled website, Pier1.com. The website has a brand new, fully redesigned look, feel and functionality. The Company also continues working diligently towards the implementation of its new point-of-sale system, which it began to pilot in a small number of stores during the third quarter. Once a successful pilot has been executed, the Company will commence an all store rollout of the new point-of-sale system next year, with plans to begin e-Commerce integration by autumn of 2013, strengthening the foundation on which to build its multi-channel capabilities.

During the third quarter, the Company opened nine new stores and closed six stores. During the fourth quarter of fiscal 2013, the Company expects to open approximately five to seven new stores and close three to five stores. For the full fiscal year, the Company anticipates having total store openings of 21 to 23 stores and closings of 10 to 12 stores, for a net of 11 store openings to end the fiscal year with approximately 1,063 stores. As part of its new three-year growth plan of improving its store portfolio, the Company is taking advantage of opportunities in select markets to relocate stores, with a goal of improving its market position and long-term profitability. Plans to improve the store portfolio also include the refurbishment of certain stores with enhanced merchandise fixture packages and lighting upgrades.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

The Company completed approximately 50 store refurbishments during the second quarter of fiscal 2013 and currently plans to refurbish approximately 50 additional stores in the fourth quarter. By the end of the fiscal year, refurbishments will be complete in nearly 50% of the entire store portfolio.

Net sales for the third quarter of fiscal 2013 were $424.5 million, a 10.9% increase from $382.7 million during the same period last year. Comparable store sales for the quarter increased 7.9%. Total sales for the first nine months of fiscal 2013 were $1.153 billion, a 9.1% increase from last year’s $1.057 billion. Comparable store sales increased 7.3% for the first nine months of fiscal 2013. The increase in sales for both the quarter and year-to-date periods was primarily the result of increases in store traffic and average ticket. Sales per retail square foot were $194 for the trailing twelve months ended November 24, 2012, up from $178 for the trailing twelve months ended November 26, 2011.

Gross profit increased 70 basis points to 43.9% of sales during the third quarter and to 42.3% for the year-to-date period, compared to 43.2% and 41.1% in the same periods, respectively, last year. Merchandise margins at the store level for the third quarter were essentially flat compared to the same period last year. Merchandise margins, including the direct-to-consumer business (“Pier 1 To-You”), were 60.2% for the third quarter of this year. Merchandise margins at the store level for the first nine months of fiscal 2013 were 60.3% compared to 59.9% in the same period last year. Merchandise margins, including the direct-to-consumer business, were 60.2% for the first nine months of this year. Store occupancy costs were 16.3% of sales for the third quarter and 17.9% of sales for the year-to-date period, compared to 17.3% of sales and 18.9% of sales for the respective periods last year.

Operating income for the third quarter of fiscal 2013 was $38.8 million, or 9.1% of sales, compared to $32.9 million, or 8.6% of sales, for the same period in the prior year. Operating income for the first nine months of fiscal 2013 was $98.5 million, or 8.5% of sales, compared to $76.5 million, or 7.2% of sales, for the same period in the prior year. These improvements over the prior year were primarily due to increases in sales and gross profit.

For the third quarter of fiscal 2013, the Company recorded net income of $23.7 million, or $0.22 per share, compared to $23.0 million, or $0.21 per share, for the same period last year. Third quarter adjusted net income for fiscal 2013 on a non-GAAP basis, which excludes the estimated impact of Hurricane Sandy and utilizes an estimated 35.6% annual effective tax rate for fiscal 2013, was $27.1 million, or $0.25 per share. Net income for the first nine months of fiscal 2013 was $67.7 million, or $0.62 per share, which includes the tax benefit and reduced accrued interest resulting from the reversal of a portion of the Company’s reserve for uncertain income tax positions during the second quarter of fiscal 2013. For the first nine months of fiscal 2013, adjusted net income on a non-GAAP basis was $65.7 million, or $0.60 per share, and excludes the estimated impact of Hurricane Sandy, utilizes an estimated annual effective tax rate of 35.6%, and excludes the reversal of accrued interest referenced above. The Company reported net income $53.7 million, or $0.47 per share, for the same period last year. See Non-GAAP Financial Measures below for a reconciliation of GAAP to non-GAAP financial measures.

During the first nine months of the year, the Company utilized $57.7 million for capital expenditures. These expenditures included approximately $37.5 million for the opening of 16 new stores, four major remodels, new merchandise fixtures and lighting, and other leasehold improvements and equipment. The Company also invested $1.7 million associated with the build-out of the e-Commerce fulfillment space located in one of the Company’s distribution centers. The remaining capital expenditures were utilized for technology and infrastructure initiatives, including e-Commerce and the new point-of-sale system. Capital expenditures for fiscal 2013 are expected to be approximately $70 million to $75 million.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

On December 14, 2012, the Company completed the $100 million share repurchase program announced in October 2011, resulting in the repurchase of approximately 5.3% of the Company’s outstanding common stock. A total of 5,822,142 shares of its common stock were repurchased at a weighted average cost of $17.18 per share for a total cost of $100 million. On December 13, 2012, the Company’s Board of Directors authorized a new $100 million share repurchase program. During the first nine months of fiscal 2013, the Company paid quarterly cash dividends of $0.04 per share per quarter totaling approximately $12.8 million. In addition, on December 13, 2012, the Company’s Board of Directors declared a $0.05 per share quarterly cash dividend, which reflects a 25% increase from the previous quarterly cash dividend, payable on January 30, 2013 to shareholders of record on January 16, 2013.

Results of Operations

Management reviews a number of key performance indicators to evaluate the Company’s financial performance. The following table summarizes those key performance indicators for the three and nine months ended November 24, 2012 and November 26, 2011:


	Three Months Ended						Nine Months Ended
	November 24, 2012			November 26, 2011			November 24, 2012			November 26, 2011
Key Performance Indicators
Total sales growth		10.9	%		8.2	%		9.1	%		9.0	%
Comparable stores sales growth ⁽¹⁾		7.9	%		7.0	%		7.3	%		9.2	%
Merchandise margins as a % of sales		60.2	%		60.5	%		60.2	%		59.9	%
Gross profit as a % of sales		43.9	%		43.2	%		42.3	%		41.1	%
Selling, general and administrative expenses as a % of sales		32.8	%		33.3	%		31.9	%		32.4	%
Operating income as a % of sales		9.1	%		8.6	%		8.5	%		7.2	%
Net income as a % of sales		5.6	%		6.0	%		5.9	%		5.1	%


	For the period ended
	November 24, 2012			November 26, 2011
Sales per average retail square foot ⁽²⁾	$	194		$	178
Total retail square footage (in thousands)		8,348			8,285
Total retail square footage increase from the same period last year		0.8	%		0.6	%

⁽¹⁾	Includes orders placed online for store pick-up (“Pier 1 To-Go”)

⁽²⁾	Sales per average retail square foot is calculated using a rolling 12-month total of store sales (including Pier 1 To-Go) over a 13-month retail square footage weighted average.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

Net Sales – Net sales consisted almost entirely of sales to retail customers, net of discounts and returns, but also included delivery service revenues and wholesale sales and royalties. Sales by retail concept during the period were as follows (in thousands):


	November 24, 2012		November 26, 2011		November 24, 2012		November 26, 2011
Stores	$	414,787	$	377,989	$	1,135,735	$	1,045,419
Other ⁽¹⁾		9,740		4,710		17,525		11,435

Net sales	$	424,527	$	382,699	$	1,153,260	$	1,056,854

⁽¹⁾	Other sales consisted primarily of wholesale sales and royalties received from Grupo Sanborns, S.A. de C.V., gift card breakage and direct-to-consumer sales (“Pier 1 To-You”).

Net sales for the third quarter of fiscal 2013 were $424.5 million, an increase of 10.9% from last year’s third quarter net sales of $382.7 million. Comparable store sales for the third quarter increased 7.9%, which was primarily the result of an increase in store traffic and average ticket over the same period last year. The Canadian dollar strengthened compared to the U.S. dollar, contributing to an increase in comparable store sales of approximately 20 basis points for the quarter. Excluding the impact of Hurricane Sandy, the Company estimates that third quarter comparable store sales would have increased slightly over 9%. Total net sales during the year-to-date period increased $96.4 million, or 9.1%, to $1.153 billion when compared to the same period last year, primarily as a result of an increase in store traffic and average ticket. Comparable store sales increased 7.3% for the first nine months of fiscal 2013. For the year-to-date period, the Canadian dollar weakened compared to the U.S. dollar, offsetting the increase in comparable store sales by approximately 20 basis points. Sales per retail square foot were $194 for the trailing twelve months ended November 24, 2012, up from $178 for the trailing twelve months ended November 26, 2011. Total store count as of November 24, 2012 was 1,061 compared to 1,054 stores a year ago.

Sales for the nine-month period were comprised of the following incremental components (in thousands):


	Net Sales
Net sales for the nine months ended November 26, 2011	$	1,056,854
Incremental sales growth (decline) from:
New stores opened during fiscal 2013 ⁽¹⁾		13,776
Stored opened during fiscal 2012		12,421
Comparable stores ⁽²⁾		75,866
Closed stores and other		(5,657	)

Net sales for the nine months ended November 24, 2012	$	1,153,260

⁽¹⁾	Includes direct-to-consumer sales (Pier 1 To-You).

⁽²⁾	Includes orders placed online for store pick-up (Pier 1 To-Go).

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

A summary reconciliation of the Company’s stores open at the beginning of fiscal 2013 to the number open at the end of the third quarter is as follows:


	United States			Canada			Total
Open at February 25, 2012		971			81			1,052
Openings		16			-			16
Closings		(6	)		(1	)		(7	)

Open at November 24, 2012 ⁽¹⁾		981			80			1,061

⁽¹⁾

The Company supplies merchandise and licenses the Pier 1 Imports name to Grupo Sanborns, S.A. de C.V., which sells Pier 1 Imports merchandise primarily in a “store within a store” format. At November 24, 2012, there were 49 locations in Mexico and 1 in El Salvador. These locations were excluded from the table above.

Gross Profit – Gross profit, which is calculated by deducting store occupancy costs from merchandise margin dollars, was 43.9% as a percentage of sales for the third quarter of fiscal 2013 compared to 43.2% for the same period last year, a 70 basis point improvement. For the first nine months of fiscal 2013, gross profit was 42.3% as a percentage of sales, compared to 41.1%, an improvement of 120 basis points. Merchandise margins at the store level for the third quarter were essentially flat compared to the same period last year. Merchandise margins, including the direct-to-consumer business (Pier 1 To-You), were 60.2% for the third quarter of this year. Merchandise margins at the store level for the first nine months of fiscal 2013 were 60.3% compared to 59.9% in the same period last year. Merchandise margins, including the direct-to-consumer business, were 60.2% for the first nine months of this year.

Store occupancy costs for the quarter were $69.4 million, or 16.3% of sales, compared to $66.2 million, or 17.3% of sales in the same quarter last year. Year to date, store occupancy costs were $206.0 million, or 17.9% of sales, compared to $199.3 million, or 18.9% of sales for the same period last year.

Compared to the third quarter and year-to-date periods last year, overall rent expense increased in dollars primarily due to the increase in new store openings, but decreased as a percent of sales.

Operating Expenses – Selling, general and administrative expenses for the third quarter of fiscal 2013 were $139.2 million, or 32.8% of sales, compared to $127.5 million, or 33.3% of sales, for the same quarter last year. The 50 basis point improvement was primarily due to the leveraging of store salaries and fixed expenses, and was slightly offset by increases in marketing expense. Year-to-date selling, general and administrative expenses were $367.6 million, or 31.9% of sales, compared to $342.4 million, or 32.4% of sales, for the same period of fiscal 2012.

Operating income for the third quarter of fiscal 2013 was $38.8 million, or 9.1% of sales, compared to $32.9 million, or 8.6% of sales, last year. For the first nine months of fiscal 2013, operating income totaled $98.5 million, or 8.5% of sales, compared to $76.5 million, or 7.2% of sales, for the same period last year.

Nonoperating Income and Expense – During the first nine months of fiscal 2013, nonoperating income was $2.8 million, compared to $6.2 million for the same period in fiscal 2012. The decrease was primarily the result of the completion of deferred gain recognition related to transactions with the Company’s former proprietary credit card provider. During the second quarter of fiscal 2013, the Company reversed its reserve for uncertain income tax positions for which the statute of limitations had expired. This adjustment resulted in the reversal of $2.8 million of accrued interest expense, which partially offset the decrease in deferred gain recognition compared to the prior year.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

Income Taxes – During the second quarter of fiscal 2013, the Company reversed a portion of its reserve for uncertain income tax positions for which the statute of limitations had expired. Including this adjustment, the Company expects its annual effective tax rate to approximate 35.6% for fiscal 2013.

Net Income – During the third quarter of fiscal 2013, the Company recorded net income of $23.7 million, or $0.22 per share, compared to $23.0 million, or $0.21 per share, for the same period last year. Third quarter adjusted net income on a non-GAAP basis, which excludes the estimated impact of Hurricane Sandy and utilizes an estimated 35.6% annual effective tax rate for fiscal 2013, was $27.1 million, or $0.25 per share. Net income for the first nine months of fiscal 2013 was $67.7 million, or $0.62 per share, compared to $53.7 million, or $0.47 per share, for the first nine months of fiscal 2012. For the first nine months of fiscal 2013, adjusted net income on a non-GAAP basis was $65.7 million, or $0.60 per share, and excludes the estimated impact of Hurricane Sandy, utilizes an estimated annual effective tax rate of 35.6%, and excludes the reversal of accrued interest referenced above.

Non-GAAP Financial Measures


	Three Months Ended		Nine Months Ended
	November 24, 2012		November 24, 2012
	($ in millions, except per share amounts)

Net Income (GAAP)	$	23.7	$	67.7
Add back: Income Tax Provision (GAAP)		14.8		33.6

Income Before Income Taxes (GAAP)		38.5		101.3
Interest Expense Adjustment Related to Uncertain Tax Positions		-		(2.8	)

Adjusted Income Before Income Taxes (non-GAAP)		38.5		98.5
Less: Adjusted Income Tax Provision at Estimated 35.6% Annual Effective Tax Rate		13.7		35.1
Estimated Impact of Hurricane Sandy, net of tax		2.3		2.3

Adjusted Net Income (non-GAAP)	$	27.1	$	65.7


Diluted Earnings per Share (GAAP)	$	0.22	$	0.62
Interest Expense Adjustment Related to Uncertain Tax Positions, net of tax		-		(0.02	)
Difference of Income Tax Provision at Estimated 35.6% Annual Effective Tax Rate		0.01		(0.02	)
Estimated Impact of Hurricane Sandy, net of tax		0.02		0.02

Adjusted Diluted Earnings per Share (non-GAAP)	$	0.25	$	0.60

The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). The Company believes that the non-GAAP financial measures included in this quarterly report allow management and investors to understand and compare the Company’s earnings per share results in a more consistent manner for the three and nine months ended November 24, 2012. The non-GAAP measures should be considered supplemental and not a substitute for the Company’s net income and earnings per share results that were recorded in accordance with GAAP for the periods presented.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

Liquidity and Capital Resources

The Company ended the first nine months of fiscal 2013 with $120.8 million in cash and temporary investments compared to $287.9 million at the end of fiscal 2012. The decrease from fiscal 2012 year end was primarily the result of the utilization of cash to support the Company’s three-year growth plan, including capital expenditures of $57.7 million, $89.7 million to repurchase shares of the Company’s common stock, and cash dividends of $12.8 million.

Operating activities during the first nine months of fiscal 2013 used $20.2 million of cash, primarily as a result of an increase in inventories partially offset by net income. Inventory levels at the end of the third quarter of fiscal 2013 were $417.5 million, an increase of 13.5% from the third quarter of fiscal 2012 due to additional inventory to support the new e-Commerce business and slightly larger purchases of select merchandise, including seasonal, to support higher sales.

During the first nine months of fiscal 2013, investing activities used $59.5 million compared to $39.8 million during the same period last year. Total capital expenditures were $57.7 million which included approximately $37.5 million for the opening of 16 new stores, four major remodels, new merchandise fixtures and lighting, and other leasehold improvements and equipment. The Company also invested $1.7 million associated with the build-out of the e-Commerce fulfillment space located in one of the Company’s distribution centers. The remaining capital expenditures were for technology and infrastructure initiatives, including e-Commerce and the new point-of-sale system. Capital expenditures for fiscal 2013 are expected to be approximately $70 million to $75 million.

During the first nine months of fiscal 2013, financing activities used $87.3 million, primarily related to the Company repurchasing 5,298,950 shares of its common stock at a weighted average cost of $16.94 per share and a total cost of approximately $89.7 million under the $100 million share repurchased program announced in October 2011. On December 14, 2012, the Company completed this Board approved share repurchase program. In total, the Company repurchased 5,822,142 shares of its common stock at a weighted average cost of $17.18 and a total cost of approximately $100.0 million. In addition, the Company paid quarterly cash dividends of $0.04 per share per quarter, totaling $12.8 million. These cash outflows were partially offset by the receipt of $15.2 million in proceeds related to employee stock option exercises and the Company’s employee stock purchase plan.

At the end of the third quarter, the Company’s minimum operating lease commitments remaining for fiscal 2013 were $56.0 million. The present value of total existing minimum operating lease commitments discounted at 10% was $709.3 million at the fiscal 2013 third quarter end compared to $631.1 million at the fiscal 2012 third quarter end.

As of November 24, 2012, the Company had no cash borrowings on the line of credit and approximately $38.8 million in letters of credit and bankers’ acceptances outstanding under its secured credit facility. The calculated borrowing base was $300 million, of which approximately $261.2 million was available for additional borrowings. As of the end of the third quarter of fiscal 2013, the Company was in compliance with all required covenants stated in the agreement.

Working capital requirements are expected to be funded with cash from operations, available cash balances, and if required, borrowings against lines of credit. Given the Company’s cash position and the various liquidity options available, the Company believes it has sufficient liquidity to fund operational obligations, capital expenditure requirements, share repurchases and cash dividends.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations. (continued)

Forward-looking Statements

Certain matters discussed in this quarterly report, except for historical information contained herein, may constitute “forward-looking statements” that are subject to certain risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The Company may also make forward-looking statements in other reports filed with the SEC and in material delivered to the Company’s shareholders. Forward-looking statements provide current expectations of future events based on certain assumptions. These statements encompass information that does not directly relate to any historical or current fact and often may be identified with words such as “anticipates,” “believes,” “expects,” “estimates,” “intends,” “plans,” “projects” and other similar expressions. Management’s expectations and assumptions regarding planned store openings and closings, financing of Company obligations from operations, success of its marketing, merchandising and store operations strategies, the development and implementation of its e-Commerce business and other future results are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. Risks and uncertainties that may affect Company operations and performance include, among others, the effects of terrorist attacks or other acts of war, conflicts or war involving the United States or its allies or trading partners, labor strikes, weather conditions or natural disasters, volatility of fuel and utility costs, the actions taken by the United States and other countries to stimulate the economy, the general strength of the economy and levels of consumer spending, consumer confidence, suitable store sites and distribution center locations, the availability of a qualified labor force and management, the availability and proper functioning of technology, including e-commerce systems, and communications systems supporting the Company’s key business processes, the ability of the Company to import merchandise from foreign countries without significantly restrictive tariffs, duties or quotas, and the ability of the Company to source, ship and deliver items of acceptable quality to its U.S. distribution centers at reasonable prices and rates and in a timely fashion. The foregoing risks and uncertainties are in addition to others discussed elsewhere in this report which may also affect Company operations and performance. The Company assumes no obligation to update or otherwise revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied will not be realized. Additional information concerning these risks and uncertainties is contained in the Company’s Annual Report on Form 10-K for the year ended February 25, 2012, as filed with the Securities and Exchange Commission.

Impact of Inflation

Inflation has not had a significant impact on the operations of the Company. However, the Company’s management cannot be certain of the effect inflation may have on the Company’s operations in the future.

PART I

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

There are no material changes to the Company’s market risk as disclosed in its Annual Report on Form 10-K filed for the fiscal year ended February 25, 2012.

Item 4.

Controls and Procedures.

The Company maintains disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), that are designed to ensure that information required to be disclosed by the Company in its reports filed or furnished under the Exchange Act is (a) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is (b) accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding the required disclosure.

As required by Rules 13a-15 and 15d-15 under the Exchange Act, an evaluation was conducted under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of November 24, 2012. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded, with reasonable assurance, that the Company’s disclosure controls and procedures were effective as of such date.

There has not been any change in the Company’s internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

Item 1.

Legal Proceedings.

The Company is a party to various legal proceedings and claims in the ordinary course of its business. The Company believes that the outcome of these matters will not have a material adverse effect on its consolidated financial position, results of operations or liquidity.

Item 1A.

Risk Factors.

There are no material changes from risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended February 25, 2012.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

The following table provides information with respect to purchases of common stock of the Company made during the three months ended November 24, 2012, by Pier 1 Imports, Inc. or any “affiliated purchaser” of Pier 1 Imports, Inc. as defined in Rule 10b-18(a)(3) under the Exchange Act:


Period	Total Number of Shares Purchased		Average Price Paid per Share (including fees)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽¹⁾		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ⁽¹⁾

Aug 26, 2012 through Sept 29, 2012		-	$	-		-	$	20,719,418
Sept 30, 2012 through Oct 27, 2012		147,600		19.24		147,600		17,878,881
Oct 28, 2012 through Nov 24, 2012		399,235		19.10		399,235		10,253,145

		546,835	$	19.14		546,835	$	10,253,145

⁽¹⁾

On December 14, 2012, subsequent to quarter end, the Company completed its $100.0 million share repurchase program, which was announced in October 2011. Under this program, the Company repurchased a total of 5,822,142 shares at a weighted average cost of $17.18 per share for a total cost of approximately $100.0 million. On December 13, 2012, the Company announced that its Board of Directors had authorized a new $100.0 million share repurchase program.

During the third quarter of fiscal 2013, the Company did not acquire any shares of the Company’s common stock from employees to satisfy tax withholding obligations that arose upon vesting of restricted stock granted pursuant to approved plans.

Item 3.

Defaults upon Senior Securities.

None.

Item 4.

Mine Safety Disclosures.

Not applicable.

Item 5.

Other Information.

None.

Item 6.

Exhibits.

The Exhibit Index following the signature page to this Quarterly Report on Form 10-Q lists the exhibits furnished as required by Item 601 of Regulation S-K and is incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	PIER 1 IMPORTS, INC.

Date: January 3, 2013	By:	/s/ Alexander W. Smith
		Alexander W. Smith, President and
		Chief Executive Officer

Date: January 3, 2013	By:	/s/ Charles H. Turner
		Charles H. Turner, Senior Executive Vice President
		and Chief Financial Officer

Date: January 3, 2013	By:	/s/ Darla D. Ramirez
		Darla D. Ramirez, Principal Accounting Officer

EXHIBIT INDEX


Exhibit No.		Description

3(i)		Restated Certificate of Incorporation of Pier 1 Imports, Inc. as filed with the Delaware Secretary of State on October 12, 2009, incorporated herein by reference to Exhibit 3(i) to the Company’s Form 10-Q for the quarter ended November 28, 2009 (File No. 001-07832).

3(ii)		Amended and Restated Bylaws of Pier 1 Imports, Inc. (as amended through October 9, 2009), incorporated herein by reference to Exhibit 3(ii) to the Company’s Form 8-K filed October 16, 2009 (File No. 001-07832).

10.1*		Pier 1 Imports, Inc. Deferred Compensation Plan Amendment No. 1, effective January 1, 2013.

10.2*		ERISA Plan Document and Summary Plan Description for the Pier 1 Imports, Inc. Supplemental Individual Disability Income Benefit Plan, effective September 1, 2012.

31.1*		Certification of the Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a).

31.2*		Certification of the Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a).

32.1*		Section 1350 Certifications.

101.INS**+		XBRL Instance Document

101.SCH**+		XBRL Taxonomy Extension Schema Document

101.CAL**+		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF**+		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**+		XBRL Taxonomy Extension Label Linkbase Document

101.PRE**+		XBRL Taxonomy Extension Presentation Linkbase Document

*	Filed herewith

**	Furnished herewith

+	Submitted electronically with this Quarterly Report.

Exhibit 10.1

PIER 1 IMPORTS, INC. DEFERRED COMPENSATION PLAN

AMENDMENT NO. 1

This Amendment No. 1 is made to the Pier 1 Imports, Inc. Deferred Compensation Plan (the “Plan”). The Plan was made effective January 1, 2011 by Pier 1 Imports, Inc. a Delaware corporation (the “Company”). This Amendment No. 1 is made effective January 1, 2013 by the Company.

WHEREAS, the Company desires to (i) amend the eligibility service requirement for Discretionary Contributions, and (ii) amend the valuation date for all key employee distributions under Section 7.08 of the Plan; and

WHEREAS, pursuant to Section 12.04 of the Plan, the Company may amend the Plan at any time, in whole or in part.

NOW, THEREFORE, the Plan is hereby amended as follows:

Section 3.01 of the Plan is amended to add the following sentence to the end of Section 3.01:

“Notwithstanding the foregoing or anything else to the contrary in this Plan, an Executive selected for participation is not required to meet the eligibility service requirement of the 401(k) Plan to receive a Discretionary Contribution.”

Any distribution that is required to be delayed under Section 7.08 of the Plan will be valued as of the last business day of the calendar month preceding the actual date of distribution.

This Amendment No. 1 shall not operate or be construed to alter, modify or amend the Plan except as expressly set forth herein. All capitalized terms used in this Amendment No. 1, unless specifically defined herein, have the same meanings attributed to them in the Plan. The terms and provision of the Plan, as expressly amended hereby, shall remain in full force and effect.

IN WITNESS WHEREOF, the Company has caused this Amendment No. 1 to be executed effective January 1, 2013.

PIER 1 IMPORTS, INC.

Gregory S. Humenesky

Executive Vice President - Human Resources

October 11, 2012

Exhibit 10.2

ERISA Plan Document and Summary Plan Description for the Pier 1 Imports, Inc. Supplemental Individual Disability Income Benefit Plan

At the request of your employer, we are including this important information as required pursuant to ERISA. This document, together with the information contained in your individual disability income insurance policy (the “Policy”), which you have received, constitute both the Summary Plan Description (SPD) and the plan document for the Pier 1 Imports, Inc. Supplemental Individual Disability Income Benefit Plan , and should be considered your SPD. Your employer or MetLife may periodically send you changes to the Plan or Policy which you should consider to be a part of your SPD. The terms of this SPD and your Policy control in the event there is any inconsistency between these documents and any other information or communication you may have received. Your employer originally established this Plan effective as of September 1, 2012.

NAME OF THE PLAN

Pier 1 Imports, Inc. Supplemental Individual Disability Income Benefit Plan (“The Plan”)

NAME AND ADDRESS OF EMPLOYER AND PLAN ADMINISTRATOR

Pier 1 Imports, Inc.

100 Pier 1 Place

Fort Worth, Texas 76102

(817) 252-8000

Plan Administrator

Pier 1 Imports, Inc.

100 Pier 1 Place

Fort Worth, Texas 76102

(817) 252-8000

EMPLOYER IDENTIFICATION NUMBER (EIN) AND PLAN NUMBER


EIN: 75-1729843		Plan Number: 520

TYPE OF PLAN

Employee Welfare Benefit Plan Including Disability Income Insurance Benefits

CLAIMS ADMINISTRATOR FOR INDIVIDUAL DISABILITY INCOME INSURANCE POLICY BENEFITS:

Metropolitan Life Insurance Company (“MetLife”)

TYPE OF ADMINISTRATION

The Individual Disability Income Insurance policies issued under this Plan (“policies”) are insured by MetLife. MetLife is the Claims Administrator for benefits payable under these policies and has been given authority under the Plan to conduct a full and fair review of any claims under the policies.

AGENT FOR SERVICE OF LEGAL PROCESS

For disputes arising under those portions of the Plan insured by the policies issued by MetLife, service of legal process may be made upon MetLife by serving the supervisory official of the Insurance Department in the state in which you reside.

For other disputes arising under the Plan, service of legal process may be made upon the Plan Administrator at the above address.

ELIGIBILITY FOR PARTICIPATION; DESCRIPTION OR SUMMARY OF BENEFITS

Your employer allows the following employees of Pier 1 Imports, Inc. to participate under the Plan:

President & CEO

Senior Executive Vice President Finance/CFO

Executive Vice President Human Resources

Senior Vice President Marketing & Visual Merchandising

Executive Vice President Merchandising

Senior Vice President Business Development & Strategic Planning

Senior Vice President and General Counsel

Executive Vice President Stores

Executive Vice President Planning & Allocations

Senior Vice President & CIO

Senior Vice President International Logistics & Transport

Further, in order to become a participant in the Plan and for a policy to become effective, an employee described above must be working at least 30 hours per week as an employee of Pier 1 Imports, Inc. as of the effective date of the policy. Such employee must also be Actively at Work in order to be eligible for coverage under the Plan. The term “Actively at Work” shall mean: (1) for the 90 days prior to and including the employee’s application date, the employee has been: (a) working for Pier 1 Imports, Inc. or a previous employer doing all of the material duties of the employee’s occupation at: (i) the usual place of business; or (ii) some other location that the business required the employee to be; and the employee has worked the usual number of hours, but not less than 30 hours per week; or (b) a “full time” student in school and (2) during the 90 days prior to and including the employee’s application date, the employee has been absent from work solely due to vacation days or holidays.

In order for coverage to begin, an eligible employee must complete and submit an application form provided by MetLife. The application must be approved by MetLife.

MetLife may limit or decline coverage to individuals who (i) are working outside the United States; (ii) are not United States citizens; or (iii) are not permanent United States residents.

No policies are available to issue for ages over 70, except in the case of the policy renewability provisions as administered and interpreted by MetLife. The policy renewability provisions state that policies are non-cancelable and guaranteed renewable to age 65 or 67 (depending on state approval); except if the policy is issued at or after age 65, then the policy is non-cancelable and guaranteed renewable for five policy years from date of issue. Please refer to your Policy (including the endorsements to your Policy) and contact MetLife for additional information concerning these provisions.

The Plan provides a benefit of up to 65% of total compensation (which includes base and incentive pay), less in-force group long term disability benefits, to a maximum monthly benefit of $7,500. The Pier 1 Imports, Inc. group long term disability plan covers 60% of base salary to a maximum monthly benefit of $15,000. The total monthly maximum benefit for both plans is $22,500.

Total individual disability income insurance coverage including coverage under this Plan and any other individual disability income insurance coverage will be limited to $30,000 per month, unless otherwise noted. Total individual disability income insurance and group long term disability coverage from all sources will be limited to $40,000 per month unless otherwise noted.

The Plan provides for a 90 day Elimination Period. The term “Elimination Period” means the number of days of disability which must elapse before benefits begin to accrue for that disability. These need not be consecutive days of disability, but must occur within the accumulation period (as defined in your Policy) for the same or a related cause.

The maximum benefit period runs to age 65 (or as outlined in the table set forth below). The maximum benefit period is the maximum amount of time that applicable benefits may be paid for any period of disability under the Plan. The maximum benefit period varies by age depending on when the disability began. The maximum benefit period is set forth in the following table:


Age When Disability Begins		Maximum Benefit Period
Before Age 61		To Age 65
At Age 61 but Before Age 62		48 Months
At Age 62 but Before Age 63		42 Months
At Age 63 but Before Age 64		36 Months
At Age 64 but Before Age 65		30 Months
At Age 65 but Before Age 75		24 Months
At or After Age 75		12 Months

Benefits for disability due to a Mental Disorder and/or Substance Use Disorder (as defined in your Policy) are limited to 24 months for all periods of disability combined. However, if the participant is admitted to a hospital, the time spent in the hospital being treated for the Mental Disorder and/or Substance Use Disorder does not count toward the 24-month limitation.

The Plan may contain certain policy riders, which may be amended from time to time. All eligible employees who apply for coverage under this Plan must also apply for the optional policy riders selected by your employer. The issuance of coverage under such policy riders is not guaranteed and may be subject to certain state law requirements, age requirements and medical underwriting requirements. Please contact MetLife for additional information about eligibility requirements and coverage under any optional policy riders provided by the Plan.

Applications for coverage under the Plan submitted after the end of the initial enrollment period will be subject to full medical underwriting requirements. This provision is not applicable to newly hired employees and newly eligible employees. MetLife requires that all applications must be signed in the United States of America.

Your Policy describes the eligibility for benefits under the Policy in greater detail. It also includes a detailed description of the benefits provided under the Policy. The rights and conditions with respect to benefits payable from the Policy shall be determined under such Policy. Please refer to your Policy for additional information concerning eligibility for benefits provided under the Plan.

ERISA PLAN TERMINATION OR CHANGES

The policies issued pursuant to this Plan set forth those situations in which MetLife has the right to terminate these policies.

In addition to the foregoing, your participation under this Plan terminates as of the date on which:

•

Pier 1 Imports, Inc. terminates the Plan;

•

Your employment with Pier 1 Imports, Inc. terminates;

•

You no longer fall within a classification of employee eligible for coverage under the Plan or you no longer satisfy any other eligibility requirement of the Plan;

•

Any applicable premium contribution is due and unpaid.

Since these benefits are funded by policies issued by MetLife, you may be able to continue coverage under these policies even if the employer terminates the Plan or if your coverage under the Plan otherwise ends. Please contact MetLife for additional information regarding continuing your coverage if your employer terminates the Plan or your participation under the Plan terminates.

Your employer reserves the right to modify, amend or terminate the Plan at any time for any reason. Therefore, there is no guarantee that you will be eligible for the benefits described herein for the duration of your employment. Any such action will be taken only after careful consideration. Your consent or the consent of your beneficiary is not required to terminate, modify, amend, or change the Plan.

MetLife may terminate your Policy in accordance with the Premium and Reinstatement Section of your Policy only if premiums are not received on time. You may be eligible to reinstate your Policy under certain circumstances described in this Section of your Policy.

CONTRIBUTIONS

You are not required to make contributions to the Plan in order to be covered for the benefits under these policies. Your employer will pay all premiums on your behalf while you are a participant in the Plan. However, the amount of the premiums paid by your employer toward coverage under the Plan will be reported on your Form W-2 as income.

PLAN YEAR

The plan year for the Plan begins June 1 ^st and ends the next May 31st. Notwithstanding the foregoing, the first plan year shall run from September 1, 2012 (the original effective date of the Plan) to May 31, 2013.

CLAIMS INFORMATION

Procedures for Presenting Claims for Benefits

All claim forms needed to file for benefits under the policies can be obtained from MetLife by calling 1-800-929-1492 who will assist you or, if applicable, your beneficiary in filing claims. The instructions on the claim form should be followed carefully. This will expedite the processing of the claim. Be sure all questions are answered fully.

The completed claim form should be returned to MetLife.

When the claim has been processed, you or, if applicable, your beneficiary will be notified of the benefits paid. If any benefits have been denied, you or, if applicable, your beneficiary will receive a written explanation.

Routine Questions

If there is any question about a claim payment under the policies, an explanation may be requested from MetLife.

Individual Disability Income Insurance Benefits Claims

Claim Submission

For claims for Individual Disability Insurance benefits, the claimant must complete the appropriate claim form and submit the required proof as described in the “Claims” Section of the policies.

Initial Determination

After you submit a claim for Individual Disability Income benefits to MetLife, MetLife will review your claim and notify you of its decision to approve or deny your claim.

Such notification will be provided to you within a reasonable period, not to exceed 45 days from the date you submitted your claim; except for situations requiring an extension of time because of matters beyond the control of the Plan, in which case MetLife may have up to two (2) additional extensions of 30 days each to provide you such notification. If MetLife needs an extension, it will notify you prior to the expiration of the initial 45 day period (or prior to the expiration of the first 30 day extension period if a second 30 day extension period is needed), state the reason why the extension is needed, and state when it will make its determination. If an extension is needed because you did not provide sufficient information or filed an incomplete claim, the time from the date of MetLife’s notice requesting further information and the extension until MetLife receives the requested information does not count toward the time period MetLife is allowed to notify you as to its claim decision. You will have 45 days to provide the requested information from the date you receive the extension notice, requesting further information, from MetLife.

If MetLife denies your claim in whole or in part, the notification of the claims decision will state the reason why your claim was denied and reference the specific Policy provision(s) on which the denial is based. If the claim is denied because MetLife did not receive sufficient information, the claims decision will describe the additional information needed and explain why such information is needed. Further, if an internal rule, protocol, guideline or other criterion was relied upon in making the denial, the claims decision will state the rule, protocol, guideline or other criteria or indicate that such rule, protocol, guideline or other criteria was relied upon and that you may request a copy thereof free of charge.

Please note that the definition of disability under the individual disability income insurance policies issued by MetLife under the Plan and any Group Long Term Disability Policies your employer may have may differ. Approval of payment under one policy does not ensure payment under the other.

Appealing the Initial Determination

If MetLife denies your claim, you may appeal the decision. Upon your written request, MetLife will provide you free of charge with copies of documents, records and other

information relevant to your claim. You must submit your appeal to MetLife at the address indicated on the claim form within 180 days of receiving MetLife’s decision. Appeals must be in writing and must include at least the following information:

•

Name of Insured

•

Name of the Plan

•

Reference to the initial decision

•

An explanation why you are appealing the initial determination

As part of your appeal, you may submit any written comments, documents, records, or other information relating to your claim.

After MetLife receives your written request appealing the initial determination, MetLife will conduct a full and fair review of your claim. Deference will not be given to the initial denial, and MetLife’s review will look at the claim anew. The review on appeal will take into account all comments, documents, records, and other information that you submit relating to your claim without regard to whether such information was submitted or considered in the initial determination. The person who will review your appeal will not be the same person as the person who made the initial decision to deny your claim. In addition, the person who is reviewing the appeal will not be a subordinate of the person who made the initial decision to deny your claim. If the initial denial is based in whole or in part on a medical judgment, MetLife will consult with a health care professional with appropriate training and experience in the field of medicine involved in the medical judgment. This health care professional will not have consulted on the initial determination, and will not be a subordinate of any person who was consulted on the initial determination.

MetLife will notify you in writing of its final decision within a reasonable period of time, but no later than 45 days after MetLife’s receipt of your written request for review, except that under special circumstances MetLife may have up to an additional 45 days to provide written notification of the final decision. If such an extension is required, MetLife will notify you prior to the expiration of the initial 45 day period, state the reason(s) why such an extension is needed, and state when it will make its determination. If an extension is needed because you did not provide sufficient information, the time period from MetLife’s notice to you of the need for an extension to when MetLife receives the requested information does not count toward the time MetLife is allowed to notify you of its final decision. You will have 45 days to provide the requested information from the date you receive the notice from MetLife.

If MetLife denies the claim on appeal, MetLife will send you a final written decision that states the reason(s) why the claim you appealed is being denied and reference any specific policies provision(s) on which the denial is based. If an internal rule, protocol, guideline or other criterion was relied upon in denying the claim on appeal, the final written decision will state the rule, protocol, guideline or other criteria or indicate that such rule, protocol, guideline or other criteria was relied upon and that you may request a copy free of charge. Upon written request, MetLife will provide you free of charge with copies of documents, records and other information relevant to your claim.

Discretionary Authority of Plan Administrator and Other Plan Fiduciaries

In carrying out their respective responsibilities under the Plan, the Plan Administrator, the Claims Administrator and other Plan fiduciaries shall have full discretionary authority to interpret the terms of the Plan and to determine eligibility for and entitlement to Plan benefits in accordance with the terms of the Plan. Any interpretation or determination made pursuant to such discretionary authority shall be given full force and effect, unless it can be shown that the interpretation or determination was arbitrary and capricious.

STATEMENT OF ERISA RIGHTS

The following statement is required by federal law and regulation.

As a participant in the Plan, you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 (ERISA). ERISA provides that all plan participants shall be entitled to:

Receive Information About Your Plan and Benefits

Examine, without charge, at the Plan Administrator’s office and at other specified locations, such as worksites and union halls, all documents governing the Plan, including insurance contracts and collective bargaining agreements, and a copy of the latest annual report (Form 5500 Series) filed by the plan with the U.S. Department of Labor, if such report is required, and available at the Public Disclosure Room of the Pension and Welfare Benefit Administration.

Obtain, upon written request to the Plan Administrator, copies of documents governing the operation of the Plan, including insurance contracts and collective bargaining agreements, and copies of the latest annual report (Form 5500 Series), if such report is required, and updated summary plan description. The Plan Administrator may make a reasonable charge for the copies.

Receive a summary of the plan’s annual financial report, if such report is required. The Plan Administrator is required by law to furnish each participant with a copy of this summary annual report.

Prudent Actions by Plan Fiduciaries

In addition to creating rights for Plan participants, ERISA imposes duties upon the people who are responsible for the operation of the Plan. The people who operate your Plan, called “fiduciaries” of the Plan, have a duty to do so prudently and in the interest of you and other Plan participants and beneficiaries. No one, including your employer, your union, or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a benefit under the Plan or exercising your rights under ERISA.

Enforce Your Rights

If your claim for a welfare benefit is denied or ignored, in whole or in part, you have a right to know why this was done, to obtain copies of documents relating to the decision without charge, and to appeal any denial, all within certain time schedules under the Plan’s claim procedures. You must receive a written explanation of the reason for the denial. You have the right to have your claim reviewed.

Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request a copy of Plan documents or the latest annual report from the Plan and do not receive them within 30 days, you may file suit in a Federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the

Plan Administrator. If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or Federal court after you have exhausted the Plan’s claim procedures. If it should happen that Plan fiduciaries misuse the Plan’s money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a Federal court. The court will decide who should pay court costs and legal fees. If you are successful the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous.

Assistance with Your Questions

If you have any questions about your Plan, you should contact the Plan Administrator. If you have any questions about this statement or about your rights under ERISA, or if you need assistance in obtaining documents from the Plan Administrator, you should contact the nearest office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in your telephone directory or the Division of Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications about your rights and responsibilities under ERISA by calling the publications hotline of the Employee Benefits Security Administration.

FUTURE OF THE PLAN

It is hoped that this Plan will be continued indefinitely, but Pier 1 Imports, Inc. reserves the right to modify, amend or terminate this Plan at any time for any reason. Any such action would be taken only after careful consideration.

Exhibit 31.1

Certification of the Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a)

I, Alexander W. Smith, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Pier 1 Imports, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: January 3, 2013	By:	/s/ Alexander W. Smith
		Alexander W. Smith, President and
		Chief Executive Officer

Exhibit 31.2

Certification of the Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a)

I, Charles H. Turner, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Pier 1 Imports, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: January 3, 2013	By:	/s/ Charles H. Turner
		Charles H. Turner, Senior Executive Vice President and
		Chief Financial Officer

Exhibit 32.1

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Each of the undersigned officers of Pier 1 Imports, Inc., hereby certifies that:

The Quarterly Report on Form 10-Q of Pier 1 Imports, Inc. for the period ended November 24, 2012 fully complies with the requirements of sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the above-mentioned report fairly presents, in all material respects, the financial condition and results of operations of Pier 1 Imports, Inc. for the period covered by the report.


Date: January 3, 2013	By:	/s/ Alexander W. Smith
		Alexander W. Smith, President and
		Chief Executive Officer

Date: January 3, 2013	By:	/s/ Charles H. Turner
		Charles H. Turner, Senior Executive Vice President and
		Chief Financial Officer

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