UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-K

For the fiscal year ended March 1, 2014.February 27, 2016.

OR

For the transition period from                to                

Commission File No.001-07832

PIER 1 IMPORTS, INC.

(Exact name of registrant as specified in its charter)

Company’s telephone number, including area code: (817)252-8000

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x¨    No  ¨x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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 Regulation S-T 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 if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form10-K.  x

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.

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

The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the closing price as of the last business day of the registrant’s most recently completed second fiscal quarter, August 31, 2013,29, 2015, was approximately $2,275,048,000.$853,235,681. The registrant has no non-voting common stock.

As of April 23, 2014,20, 2016, there were outstanding 94,534,03183,775,497 shares of the registrant’s common stock, all of one class.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents have been incorporated herein by reference:

PIER 1 IMPORTS, INC.

FORM 10-K ANNUAL REPORT

Fiscal Year Ended March 1, 2014February 27, 2016

Table of ContentsTABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

Certain statements contained in Item 1, Item 1A, Item 3, Item 7, Item 7A, Item 8 and elsewhere in this report may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Pier 1 Imports, Inc. and its consolidated subsidiaries (the “Company”) may also make forward-looking statements in other reports filed with the United States Securities and Exchange Commission (“SEC”), in press releases and in material delivered to the Company’s shareholders. Forward-looking statements provide current expectations of future events based on management’s assumptions and assessments in light of past experience and trends, current economic and industry conditions, expected future developments, and other relevant factors. These statements encompass information that does not directly relate to any historical or current fact and often may be identified with words such as “believe,” “expect,” “estimate,” “anticipate,” “plan,” “may,” “will,” “intend” and other similar expressions. Management’s expectations and assumptions regarding the effectiveness of the Company’s marketing campaigns and customer databases, consumer spending patterns, inventory levels and values, the Company’s ability to implement planned cost control measures, expected benefits from the real estate optimization initiative, including cost savings and increases in efficiency, and changes in foreign currency values relative to the U.S. Dollar 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. Additional risks and uncertainties that may affect Company operations and performance include, among others: an inability to anticipate, identify and respond to changing customer trends and preferences; an inability to identify and successfully implement strategic initiatives; risks related to outsourcing, including disruptions in business and increased costs; an overall decline in the health of the United States economy and its impact on consumer confidence and spending; negative impacts from failure to control merchandise returns and recalls; disruptions in the Company’s e-Commerce website; the ability of the Company to source, ship, and deliver items of acceptable quality to its U.S. distribution centers, stores and customers at reasonable prices and rates in a timely fashion; failure to successfully manage and execute the Company’s marketing initiatives; potential impairment charges; an inability to operate in desirable locations at reasonable rental rates; factors affecting consumer spending, including employment levels and disposable income, interest rates, consumer debt levels, fuel and transportation costs and other factors; failure to attract and retain an effective management team or changes in the cost or availability of a suitable workforce; failure to successfully manage omni-channel operations; competition; seasonal variations; increases in costs that are outside the Company’s control; adverse weather conditions or natural disasters; risks related to technology; failure to protect consumer data; failure to successfully implement new information technology systems and enhance existing systems; risks related to cybersecurity; failure to maintain positive brand perception and recognition; regulatory and legal risks; risks related to imported merchandise including the health of global, national, regional, and local economies and their impact on vendors, manufacturers and merchandise; disruptions in the global credit and equity markets; and risks related to insufficient cash flows and access to capital. 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 this Annual Report on Form 10-K for the year ended February 27, 2016, included in Item 1A. Risk Factors.

PIER 1 IMPORTS, INC.ï  2016 Form 10-K3

PART I

Item 1. Business.

(a) General Development of Business.

Pier 1 Imports, Inc. was incorporated as a Delaware corporation in 1986. Throughout this report, references to the “Company” include Pier 1 Imports, Inc. and its consolidated subsidiaries. References to “Pier 1 Imports” relate to the Company’s retail locationsstores and an e-Commerce website all conducting business under the name Pier 1 Imports^®.Imports.

As of March 1, 2014,February 27, 2016, the Company had 1,0721,032 stores in the United States and Canada. In fiscal 2014,2016, the Company opened 2717 new Pier 1 Imports stores and closed 1750 stores, mostapproximately a quarter of which were relocations. Subject to changes in the retail environment, availability of suitable store sites, and lease renewal negotiations,On April 8, 2015, the Company plansannounced a plan to open approximately 30 new Pier 1 Imports stores and close 25 stores, most of which will be relocations, during fiscal 2015. During fiscal 2014, the Company also refurbished approximately 50 stores with a new merchandise fixture package and lighting upgrades, completed major remodels at six locations, and added new fixtures in numerous existing stores. During fiscal 2013, the Company successfully executed the launchoptimize its store portfolio as part of its e-Commerce enabled website, Pier1.com.‘1 Pier 1’ strategy to drive growth through its omni-channel platform, reduce store occupancy and payroll costs and improve efficiency. The real estate optimization plan includes three parts: (1) closure of approximately 100 stores over a three to four fiscal-year period commencing in fiscal 2016, primarily through natural lease expirations and relocations; (2) a more modest new store opening and relocation program; and (3) ongoing renegotiations of rent commitments. The Company operates regional distribution center facilities andand/or fulfillment centers in or near Baltimore, Maryland; Columbus, Ohio; Fort Worth, Texas; Ontario, California; Savannah, Georgia; and Tacoma, Washington.Washington; and its executive offices are located in Fort Worth, Texas.

The Company has an arrangement to supply Grupo Sanborns, S.A. de C.V. (“Grupo Sanborns”) with Pier 1 Imports merchandise to be sold primarily in a “store within a store” format in certain stores operated by Grupo Sanborns’ subsidiaries, Sears Operadora de Mexico, S.A. de C.V. (“Sears Mexico”) and Corporacion de Tiendas Internationales, S.A. de C.V. (“Sears El Salvador”). The agreements with Grupo Sanborns will expire January 1, 2017. The agreements are structured in a manner which substantially insulates the Company from currency fluctuations in the value of the Mexican peso.

(b) Financial Information about Industry Segments.

In fiscal 2014,2016, the Company conducted business as one operating segment consisting of the retail sales of decorative home furnishings,accessories, furniture, candles, housewares, gifts and related items.seasonal products.

Financial information with respect to the Company’s business is found in the Company’s Consolidated Financial Statements, which are set forth in Item 8 herein.

(c) Narrative Description of Business.

The specialty retail operations of the Company consist of retail stores and an e-Commerce website conducting business under the name “PierPier 1 Imports,” which sell a wide variety of decorative accessories, furniture, decorative home furnishings, dining and kitchen goods, candles, housewares, gifts and other specialty items for the home.seasonal products.

As of March 1, 2014,February 27, 2016, the Company operated 991 Pier 1 Imports953 stores in the United States 81 Pier 1 Importsand 79 stores in Canada and anin addition to its e-Commerce website. During fiscal 2014, thewebsite, Pier1.com. The Company also supplied merchandise and licensed the Pier 1 Imports name to Grupo Sanborns, which sold Pier 1 ImportsImports’ merchandise primarily in a “store within a store” format in 5672 stores in Mexico and one store in El Salvador. Pier 1 ImportsImports’ stores in the United States and Canada average approximately 9,900 gross square feet, which includes an average of approximately 8,0007,900 square feet of retail selling space. The stores consist ofare located in freestanding units located near shopping centers or malls and in-line positions in major shopping centers. Pier 1 Imports operates in all major U.S. and Canadian metropolitan areas and many of the primary smaller markets. Pier 1 Imports storesThe Company generally have theirhas its highest sales volumes during November and December as a result of the holiday selling season. In fiscal 2014,2016, net sales of the Company totaled $1.8$1.9 billion.

Pier 1 Imports offers a unique selection of merchandise consisting of items imported from many countries around the world. While the broad categories of Pier 1 Imports’ merchandise remain fairly constant, individual items within these merchandise categories change frequently in order to meet the changing demands and preferences of customers.customers and trends. The principal categories of merchandise include the following:

DECORATIVE ACCESSORIES — This merchandise group constitutes the broadest category of merchandise in Pier 1 Imports’ sales mix and has remained constant at approximately 60%65% of Pier 1 Imports’ total U.S. and Canadian retail sales in fiscal years 2016, 2015 and

4PIER 1 IMPORTS, INC.  ï  20142016 Form 10-K3

fiscal years 2014, 2013 and 2012.2014. These itemsgoods are imported primarily from Asian and European countries, as well as someand are also obtained from domestic sources. This merchandise group includes decorative accents and textiles such as rugs, wall decorations and mirrors, pillows, bedding, lamps, vases, dried and artificial flowers, baskets, ceramics, dinnerware, bathcandles, fragrance, gifts and fragrance products, candles, seasonal and gift items.

FURNITURE — This merchandise group consists of furniture and furniture cushions to be used in living, dining, office, kitchen and bedroom areas, sunrooms and on patios. Also included in this group are wall decorations and mirrors. This group has remained constant at approximately 40%35% of Pier 1 Imports’ total U.S. and Canadian retail sales in fiscal years 2014, 20132016, 2015 and 2012.2014. These goods are imported from a variety of countries such as Vietnam, Malaysia, Brazil, Thailand, China, the Philippines, India and Indonesia, and are also obtained from domestic sources. This merchandise group is generally made of metal or handcrafted natural materials, including rattan, pine, beech, rubberwoodacacia, oak, and selected hardwoodsother woods with either natural, stained, painted or upholstered finishes.

Pier 1 Imports’ merchandise largely consists of items that feature a significant degree of handcraftsmanship and are mostly imported directly from foreign suppliers. The imported merchandise is predominantly handcrafted in cottage industries and small factories. Pier 1 Imports enjoys long-standing relationships with many vendors and agents and is not dependent on any particular supplier. The Company believes alternative sources of merchandise could be procured over a reasonable period of time, if necessary. In selecting the source of merchandise, Pier 1 Imports considers quality, dependability of delivery and cost. During fiscal 2014,2016, Pier 1 Imports sold merchandise imported from many different countries, with approximately 58.2%58% of its sales derived from merchandise produced in China, approximately 12.6% derived from merchandise produced16% in India and approximately 19.5%17% collectively derived from merchandise produced in Vietnam, Indonesia and the United States. The remainder of its merchandise is sourced from other countries around the world.

Imported and domestic merchandise is delivered to the Company’s distribution centers, where merchandise is received, allocated and shipped to the various stores in each distribution center’s region, and/fulfillment centers or delivered directly to customers.

The Company owns a number of federally registered trademarks and service marks under which Pier 1 Imports conducts business. Additionally, the Company has registered and has applications pending for the registration of certain other Pier 1 Imports trademarks and service marks in the United States, Canada and other foreign countries. The Company believes that its marks have significant value and are important in its marketing efforts. The Company’s policy is to pursue registration of its marks and oppose any infringement of its marks.

The Company operates in the highly competitive specialty home retail business and competes primarily with specialty sections of large general merchandise retailers and department stores, furniture and decorative home furnishings retailers, small specialty stores, online retailers and marketplaces and mass merchandising discounters.

The Company allows customers to return merchandise within a reasonable time after the date of purchase without limitation as to reason. Most returns occur within 30 days of the date of purchase. The Company monitors the level of returns and maintains a reserve for future returns based on historical experience and other known factors.

On March 1, 2014,February 27, 2016, the Company employed approximately 22,20022,000 associates in the United States and Canada, of which approximately 4,2005,000 were full-time employees and 18,00017,000 were part-time employees.

(d) Financial Information about Geographic Areas.

Information required by this Item is found inSegment Information in Note 1 of the Notes to the Consolidated Financial Statements.

(e) Available Information.

The Company makes available, free of charge through its Internet website address (www.pier1.com), its annual reportsAnnual Reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed with the Securities and Exchange Commission (the “SEC”)SEC pursuant to Section 13(a) of the Securities Exchange Act of 1934 as soon as reasonably practicable after it electronically files such material with, or furnishes such material to, the SEC.

Certain statements contained in Item 1, Item 1A, Item 7, Item 7A, Item 8 and elsewhere in this report may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company may also make forward-looking statements in other reports filed with the SEC, in press releases and

4    PIER 1 IMPORTS, INC.ï  2014 Form 10-K

in material delivered to the Company’s shareholders. Forward-looking statements provide current expectations of future events based on management’s assumptions and assessments in light of past experience and trends, current economic and industry conditions, expected future developments, and other relevant factors. These statements encompass information that does not directly relate to any historical or current fact and often may be identified with words such as “may,” “will,” “anticipates,” “believes,” “expects,” “estimates,” “intends,” “plans,” “projects” and other similar words and phrases. Management’s expectations and assumptions regarding planned store openings and closings, financing of Company obligations from operations and other events, success of its marketing, merchandising and operational strategies, its stores and e-Commerce operation, 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 including those 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 their economies, the general strength of the global, national, regional and local economies 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 and communications systems supporting the Company’s key business processes and its e-Commerce operation, 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, stores and customers 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.

Executive Officers of the Company

ALEXANDER W. SMITH, age 61,63, joined the Company as President and Chief Executive Officer in February 2007. Prior to joining the Company, Mr. Smith served as Group President of the TJX Companies, Inc., where he oversaw the operations and development of Home Goods, Marshalls, TJ Maxx, plus a number of corporate functions. He was instrumental in the development of the TK Maxx stores in Great Britain and also ran its international operations.

CHARLES H. TURNER,

PIER 1 IMPORTS, INC.ï  2016 Form 10-K5

JEFFREY BOYER, age 57, was named Senior58, joined the organization in July 2015 as Executive Vice President of the Company in April 2012 and has served as Chief Financial Officer of the Company since August 1999. Mr. Turner has served the Company for 22 years in key executive capacities, including Executive Vice President, Senior Vice President of Stores and Controller. Mr. Turner first became an officer of the Company in 1992 when he was named Principal Accounting Officer. Prior to joining the Company, heMr. Boyer served as Executive Vice President, Chief Administrative Officer and Chief Financial Officer for Tuesday Morning Corporation, based in Dallas, Texas, since September 2013. From April 2008 to September 2013, Mr. Boyer served as Executive Vice President and Chief Financial Officer of 24 Hour Fitness Worldwide, based in San Ramon, California, and was Group Controller for JC Penneypromoted to Chief Operating Officer in June 2012. From January 2003 to April 2008, Mr. Boyer held the positions of Executive Vice President, Chief Financial Officer; Co-President and a Senior Manager for KPMG Peat Marwick.Chief Financial Officer; and President and Chief Financial Officer with The Michaels Companies, Inc. He has also held executive positions with Sears Holdings Corporation and Kmart Corporation.

MICHAEL R. BENKEL, age 45,47, was named Executive Vice President of Global Supply Chain in July 2015, having previously served as Executive Vice President of Planning and Allocations insince April 2012. He joined the organization in September 2008 as Senior Vice President of Planning and Allocations. Prior to joining the Company, he spent 11 years at Williams-Sonoma Inc. in continuously advancing positions in the Pottery Barn Retail Stores division, including Vice President of Inventory Management, Director — Inventory Management, and as a home furnishings and furniture buyer.

CATHERINE DAVID,MICHAEL A. CARTER, age 50, joined the organization in August 2009 as Executive Vice President of Merchandising. Prior to her current role, Ms. David served as President and Chief Operating Officer of Kirkland’s Inc. and Vice President and General Manager with Sears Essential, Sears Grand and The Great Indoors. Ms. David also previously served Target Corporation for 13 years in various positions including Vice President and General Manager of target.direct and various positions in the buying, planning and stores divisions.

GREGORY S. HUMENESKY, age 62,57, was named Executive Vice President, of Human ResourcesCompliance and General Counsel, Secretary of the Company in February 2005. Prior to his current position, heApril 2016, having previously served in various human resource positions for other retailers, including ten years as Senior Vice President of Human Resources at Zale Corporation and 21 years in various positions of increasing importance at Macy’s.

ERIC W. HUNTER, age 40, was named Executive Vice President of Marketing in September 2013. Prior to joining the Company, Mr. Hunter held various positions with JCPenney Company, Kellwood Company, PMK/HBH/Momentum Worldwide and Creative Artists Agency.

SHARON M. LEITE, age 51, was named Executive Vice President of Sales and Customer Experience in January 2014. She joined the organization in August 2007 as Executive Vice President of Stores. Prior to joining the Company, she spent eight years at Bath & Body Works, six years as Vice President of Store Operations and two years in other leadership roles. Before joining Bath & Body Works, Ms. Leite held various operations positions with several prominent retailers, including Gap, Inc., The Walt Disney Company, and Limited, Inc.

PIER 1 IMPORTS, INC.ï  2014 Form 10-K5

MICHAEL A. CARTER, age 55, was named Senior Vice President, Compliance and General Counsel, Secretary of the Company insince January 2014. Prior to that and since December 2005, he served as Senior Vice President, General Counsel and Secretary of the Company. Mr. Carter has served within the organization for 2426 years in various leadership capacities, including Vice President — Legal Affairs, and Corporate Counsel. Mr. Carter first became an officer of the Company in 1991. Mr. Carter is a licensed attorney in the State of Texas. Prior to joining the Company, Mr. Carter practiced law with the Fort Worth, Texas law firm of Brackett and Ellis, LLP.

LAURA A. COFFEY, age 47,49, was named SeniorExecutive Vice President of Planning and Allocations in January 2014.July 2015. Ms. Coffey has served within the organization for 1719 years in various capacities, including Executive Vice President and Interim Chief Financial Officer, Senior Vice President of Planning, Senior Vice President of Business Development and Strategic Planning and Senior Vice President of Finance. Ms. Coffey first became an officer of the Company in 2005 and was namedserved as Principal Accounting Officer in 2008.from 2008 to 2011. Prior to joining the Company, she held various positions with Alcon Laboratories and KPMG, LLP.

CATHERINE DAVID, age 52, joined the organization in August 2009 as Executive Vice President of Merchandising. Prior to her current role, Ms. David served as President and Chief Operating Officer of Kirkland’s Inc. and Vice President and General Manager with Sears Essentials, Sears Grand and The Great Indoors. Ms. David also previously served with Target Corporation for 13 years in various positions including Vice President and General Manager of target.direct and various positions in the buying, planning and stores divisions.

GREGORY S. HUMENESKY, age 64, was named Executive Vice President of Human Resources of the Company in February 2005. Prior to his current position, he served in various human resource positions for other retailers, including ten years as Senior Vice President of Human Resources at Zale Corporation and 21 years in various positions of increasing responsibility at Macy’s.

ERIC W. HUNTER, age 42, was named Executive Vice President of Marketing in September 2013. Prior to joining the Company, Mr. Hunter served as Senior Vice President of Marketing and Acting Chief Marketing Officer with JCPenney Company from February 2012 to July 2013, and as Chief Marketing Officer and Group President with Kellwood Company from March 2009 until February 2012. Mr. Hunter also served in various positions with PMK/HBH/Momentum Worldwide and Creative Artists Agency.

ANDREW LAUDATO, age 49, was named Senior Vice President and Chief Information Officer in April 2002. He joined the organization in August 2000 as Vice President of Information Services. Prior to joining the Company he held various positions of increasing responsibility with the Limited, Inc., Bath & Body Works, LLC, Express, Inc., and Jo-Ann Stores, LLC.

The executive officers of the Company are elected by the Board of Directors and hold office until their successors are elected or appointed and qualified or until their earlier resignation or removal. None of the above executive officers has any family relationship with any other of such officers or with any director of the Company. None of such officers was selected pursuant to any arrangement or understanding between her or him and any other person, except for Mr. Smith, who serves as President and Chief Executive Officer pursuant to an employment agreement with the Company.

6    PIER 1 IMPORTS, INC.ï  2016 Form 10-K

Item 1A. Risk Factors.

The Company’s business is subject to risk. The following discussion, along with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and related notes, sets forth the most significant risks and uncertainties that management believes could adversely affect the Company’s business, financial condition or results of operations. Additional risks and uncertainties that management is not aware of or that management currently deems immaterial may also have a material adverse effect on the Company’s business, financial condition or results of operations. There is no assurance that this discussion covers all potential risks that may be faced by the Company. The occurrence of the described risks could cause the Company’s results to differ materially from those described in the forward-looking statements included elsewhere in this report, and could have a material adverse effect on the Company’s business, financial condition or results of operations.

Strategic Risks and Strategy Execution Risks

The Company must be able to anticipate, identify and respond to changing trends and customer preferences for decorative home furnishingsdécor and gifts.furniture.

The success of the Company’s specialty retail business depends largely upon its ability to predict trends in decorative home furnishings and gifts consistently and to provide merchandise that satisfies consumer demand in a timely manner. Consumer preferences often change and may not be reasonably predicted. A majority of the Company’s merchandise is manufactured, purchased and imported from countries around the world and may be ordered well in advance of the applicable selling season. Extended lead times may make it difficult to respond rapidly to changes in consumer demand, and as a result, the Company may be unable to react quickly and source needed merchandise. In addition, the Company’s vendors may not have the ability to handle its increased demand for product or speed of replenishment. The seasonal nature of the business leads the Company to purchase and requires it to carry a significant amount of inventory prior to its peak selling season. As a result, the Company may be vulnerable to evolving home furnishing trends, changes in customer preferences, and pricing shifts, and may misjudge the timing and selection of merchandise purchases. The Company’s failure to anticipate, predict and respond in a timely manner to changing decorative home furnishing and gift trends could lead to lower sales and additional discounts and markdowns in an effort to clear merchandise, which could have a negative impact on merchandise marginsmargin and, in turn, the results of operations.

Failure by the Company to identify, develop and successfully implement strategic initiatives could have a negative impact on the Company.

The Company’s strategies for long-term growth, strategic plans and capital allocation are dependent on the Company’s ability to identify and successfully implement those initiatives. If they are not properly identified, developed and successfully executed, the implementation of such initiatives may negatively impact the Company’s business operations and financial results. While the Company believes these disruptions would be short-term, their adverse impact could be material.

The success of the business is dependent on factors affecting consumer spending that are not controllable by the Company.

Consumer spending, including spending for the home and home-related furnishings, are dependent upon many factors beyond general economic conditions (both domestic and international), and include, among others, levels of employment, disposable consumer income, prevailing interest rates, changes in the housing market, consumer debt, costs of fuel and other energy sources, inflation, fears of recession or actual recession periods, war and fears of war, pandemics, inclement weather, tax rates and rate increases, consumer confidence in future economic conditions and global, national, regional and local political conditions (including the possibility of a governmental shut down), and consumer perceptions of personal well-being and

6    PIER 1 IMPORTS, INC.ï  2014 Form 10-K

security. Unfavorable changes in factors affecting discretionary spending could reduce demand for the Company’s products and therefore lower sales and negatively impact the business and its financial results.

The Company outsources certain business processes to third-party vendors and has certain business relationships that subject the Company to risks, including disruptions in business and increased costs.

The Company outsources numerous business processes to third parties including gift card tracking and authorization, credit card authorization and processing, store schedulingschedule visibility and time and time/attendance tracking, store maintenance services, maintenance and support of the Company’s website and e-Commerce platform, certain marketing services, insurance claims processing, customs filings and reporting, domestic and ocean freight including certain processing functions, shipment and delivery of customer orders including in-home delivery, certain merchandise compliance functions including testing, certain payroll processing and various tax filings, record keeping for certain employment benefits including retirement plans and the stock purchase plan, and third party vendor auditing. In addition, the Company also has business relationships with third parties to provide essential services such as the extension of credit to its customers and maintenance of the Pier 1 rewards credit card program. The Company makes a diligent effort to ensure that all providers of these services are observing proper internal control and business continuity practices, such as redundant processing facilities; however, there are no guarantees that failures will not occur. Failure of third parties to provide adequate services or the Company’s inability to arrange for alternative providers on favorable terms in a timely manner could have a negative effect on the Company’s financial results.

PIER 1 IMPORTS, INC.ï  2016 Form 10-K7

An overall decline in the health of the economy in the United States economyor Canada and its impact on consumer confidence and spending could negatively impact the Company’s financial results.

The recessions experienced by the United States in various years adversely affected the discretionary spending, savings and investments of United States consumers. The resulting deterioration in consumer confidence and spending during those recessionary periods resulted in consumers sacrificingreducing or eliminating their purchases of discretionary items, including the Company’s merchandise, which negatively impacted the Company’s financial results during those years. Such recessions could occur again and could have a significant impact on the Company’s financial results.

Failure to control merchandise returns could negatively impact the Company’s business and financial results.

The Company has established a provision for estimated merchandise returns based upon historical experience and other known factors. If actual returns are greater than those projected by management, additional reductions of revenue could be recorded in the future. Also, to the extent that returned merchandise is damaged, the Company may not receive full retail value from the resale of the returned merchandise. Introductions of new merchandise, changes in merchandise mix, associate selling behavior, merchandise quality issues, changes to the Company’s return policy, e-Commerce return behavior, changes in consumer confidence, new delivery channels/methods, recalls or other competitive and general economic conditions may cause actual returns to exceed the provision for estimated merchandise returns. An increase in merchandise returns that exceeds the Company’s current provisions could negatively impact the business and financial results.

A disruption in the operation of the domestic portion of the Company’s supply chain, includingor the e-Commerce website, could impact itsthe Company’s ability to deliver merchandise to its stores and customers, which could impact its sales and results of operations.

The Company maintains regional distribution centers in Maryland, Ohio, Texas, California, Georgia and Washington. At these distribution centers, merchandise is received, allocated, and shipped to the Company’s stores and customers, and at the Company’s fulfillment centers in Ohio and Texas, e-Commerce orders are fulfilled. Major catastrophic events such as natural disasters, fire or flooding, malfunction or disruption of the information systems, a disruption in communication services or power outages, or shipping interruptions (including labor issues at the ports) could delay distribution of merchandise to the Company’s stores and customers. Such disruptions could have a negative impact on the Company’s sales and results of operations.

Factors that may or may not be controllable by the Company may negatively affect the Company’s financial results.

Increases in the Company’s costs that are beyond the Company’s control, including items such as increases in fuel and transportation costs, higher interest rates, increases in losses from damaged merchandise, inflation, litigation, fluctuations in foreign currency rates, higher costs of labor, labor disputes around the world, increases in the costs of insurance and healthcare, increases in postage and media costs, higher tax rates and complying with changes in laws and regulations, including accounting standards, may negatively impact the Company’s financial results.

PIER 1 IMPORTS, INC.ï  2014 Form 10-K7

Failure to successfully manage and execute the Company’s marketing initiatives could have a negative impact on the Company’s business and results of operations.

The success and growth of the Company is partially dependent on generating customerupon retaining existing customers and acquiring new customers to generate increased traffic in order to produce sales in its stores and through the Company’s e-Commerce website. Successful marketing efforts require the ability to obtain customer information and to reach customers through their desired mode of communication utilizing various media outlets. Media placement decisions are generally made months in advance of the scheduled release date. While gathering information about customers, the Company must consider the customers’ desire for privacy and the need to comply with applicable laws and regulations. Any future changes in privacy laws or their interpretation or enforcement by courts and governmental agencies could adversely impact our ability to market to customers. The Company’s inability to obtain and use customer information, accurately predict and respect its customers’ preferences, utilize the desired modes of communication, or ensure availability of advertised products may negatively impact the business and operating results.

Changes to estimates related to the Company’s property and equipment, or financial results that are lower than its current estimates at certain store locations and determinations to close underperforming stores, may cause the Company to incur impairment charges on certain long-lived assets, negatively affecting its financial results.

The Company makes certain accounting estimates and projections with regardsregard to individual store operations as well as overall Company performance in connection with its impairment analyses for long-lived assets in accordance with applicable accounting guidance. An impairment charge ismay be required whenif the impairment analysis indicates that the carrying value of thean asset exceeds the estimated fair value orsum of the expected undiscounted future cash flows of the asset. The projection of future cash flows used in this analysis requires the use of judgment and a number of estimates and projections of future operating results. If actual results differ from the Company’s estimates, additional charges for asset impairments may be required in the future. If impairment charges are significant, the Company’s financial results could be negatively affected.

8    PIER 1 IMPORTS, INC.ï  2016 Form 10-K

Risks Related to Profitability

The Company’s success depends, in part, on its ability to operate in desirable locations at reasonable rental rates and to close underperforming stores at or before the conclusion of their lease terms.

The profitability of the business is dependentdepends in large part on operating the current store base at a reasonable profit, opening and operating new stores at a reasonable profit, and identifying and closing underperforming stores. For a majority of the Company’s current store base, a large portion of a store’s operating expense is the cost associated with leasing the location. Management actively monitors individual store performance and attempts to negotiate favorable lease expenses to ensure stores can remain profitable or have the ability to rebound to a profitable state. Current locations may not continue to be desirable as the Company’s omni-channel strategy evolves or demographics change, and the Company may choose to close an underperforming storestores before its lease expiresexpiration and incur lease termination costs associated with those closings. On April 8, 2015, the Company announced that closing.it had initiated a plan to optimize its store portfolio as part of its ‘1 Pier 1’ strategy to drive growth through its omni-channel platform, reduce occupancy and payroll costs and improve efficiency. The Company’s inability to achieve the desired cost reduction and improved efficiencies could negatively impact the Company’s future growth and earnings. The Company cannot give assurance that opening new stores or an increase in closing underperforming stores will result in greater profits.

The success of the business depends on factors affecting consumer spending that are not controllable by the Company.

Consumer spending, including spending for the home and home-related furnishings, depends upon many factors beyond general economic conditions (both domestic and international), including, among others, levels of employment, disposable consumer income, prevailing interest rates, changes in the housing market, consumer debt, costs of fuel and other energy sources, inflation, fears of recession or actual recession periods, war and fears of war, pandemics, inclement weather, tax rates and rate increases, consumer confidence in future economic conditions and global, national, regional and local political conditions (including the possibility of governmental shut downs), and consumer perceptions of personal well-being and security. Unfavorable changes in factors affecting discretionary spending could reduce demand for the Company’s products, resulting in lower sales and negatively impact the business and its financial results.

Failure to attract, motivate and retain an effective management team or changes in the cost or availability of a suitable workforce to manage and support the Company’s stores, distribution facilitiesand fulfillment centers and e-Commerce website could negatively affect the Company’s business.

The Company’s success is dependent,depends, in a large part, on being able to successfully attract, motivate and retain a qualified management team and associates. Sourcing qualified candidates to fill important positions within the Company, especially management, in the highly competitive retail environment may prove to be a challenge. The inability to recruit and retain such individuals could result in turnover in the home office, stores, and distribution facilities,and fulfillment centers, which could have a negative effect on the business. Management will continue to assess the Company’s compensation and benefit program in an effort to attract future qualified candidates and retain current experienced management team members. The Company does not believe that its compensation policies, principles, objectives and practices are structured to promote inappropriate risk taking by its executives nor inappropriate risk-takingrisk taking by its employeesassociates whose behavior would be most affected by performance-based incentives. The Company believes that the focus of its overall compensation program encourages its employeesassociates to take a balanced approach that focuses on increasing and sustaining Pier 1 Imports’ profitability.

8    PIER 1 IMPORTS, INC.ï  2014 Form 10-K

Occasionally the Company experiences union organizing activities in non-unionized distribution facilities. Similar activities could also occur in the stores. These types of activities may result in work slowdowns or stoppages, higher labor costs and higher labor costs.operating expenses. Any increase in costscost associated with labor organization at distribution facilities could result in higher costs to distribute inventory and could negatively impact merchandise margins.

Failure to successfully manage the Company’s omni-channel operations could negatively affect the Company’s business.

The Company successfully executed the launch of its e-Commerce website in the United States duringIn fiscal 2013 and in fiscal 20142016, the Company continued to implement its omni-channel strategy, ‘1 Pier 1’. Successful execution of the omni-channel initiatives depends on the Company’s ability to maintain uninterrupted availability of the Company’s e-Commerce website and supporting applications, adequate and accurate inventory levels, timely and cost-effective fulfillment and delivery of customer

PIER 1 IMPORTS, INC.ï  2016 Form 10-K9

orders, accurate shipping of undamaged product and coordination of certain of those activities within the Company’s retail stores. In addition, the Company’s call centercustomer service function must maintain a high standard of customer care. Failure to successfully manage these processes may negatively impact sales, result in the loss of customers, and damage the Company’s reputation.

The Company operates in a highly competitive retail environment with companies offering similar merchandise. If customers are lost to the Company’s competitors, sales could decline.

The Company operates in the highly competitive specialty retail business competing with specialty sections of large general merchandise retailers and department stores, home furnishing retailers, small specialty stores, online retailers and marketplaces, and mass merchandising discounters. Management believes that the Company is competing for sales on the basis of style, pricing and quality of products, constantly changing merchandise assortment, visual presentation of its merchandise and customer service. The Company experiences added short-term competition when other retailers offer promotional pricing, including free shipping, or liquidate merchandise for various reasons. If the Company is unable to maintain a competitive position, it could experience negative pressure on retail prices and loss of customers, which in turn could result in reduced merchandise margins and operating results.

The Company’s business is subject to seasonal variations, with a significant portion of its sales and earnings occurring during two months of the year.

Approximately 25% of the Company’sThe Company generally has its highest sales generally occurvolumes during the November-DecemberNovember and December holiday selling season. Severe weather or failure to predict consumer demand correctly during these months could result in lost sales or gross margin erosion if merchandise must be marked down significantly to clear inventory.

Factors that may or may not be controllable by the Company may negatively affect the Company’s financial results.

The Company’s financial results may be negatively impacted by increases in costs that are beyond the Company’s control, including items such as increases in fuel and transportation costs, higher interest rates, increases in losses from damaged merchandise, inflation, litigation, fluctuations in foreign currency exchange rates, higher costs of labor, labor disputes around the world, increases in the costs of insurance and healthcare, increases in postage and media costs, and higher tax rates. In addition, compliance with changes in laws and regulations and compliance with accounting standards and internal control requirements, may negatively impact the Company’s financial results.

The Company’s business may be harmed by adverse weather conditions and natural disasters.

Extreme or undesirable weather can negatively affect customer traffic in retail stores as well as customer shopping behavior. Natural disasters such as earthquakes, weather phenomena, and events causing infrastructure failures could negatively affect any of the Company’s 1‘1 Pier 11’ operations, including its distribution and fulfillment centers, administrative facilities, logistical infrastructures,logistics infrastructure, or operations of its suppliers domestically and in foreign countries.

Risks Associated with Dependence on Technology

The Company is heavily dependent on various kinds of technology in the operation of its business.

Failure of any critical software applications including software-as-a-service and “cloud”cloud operations, technology infrastructure, telecommunications, data communications, data storage equipment, or networks could have a negative effect, including additional expense, on the Company’s ability to manage the merchandise supply chain, sell merchandise, accomplish payment functions, report financial data or manage labor and staffing. Although the Company maintains off-site data backups, a concentration of technology-related risk exists in the Company’s headquarters located in Fort Worth, Texas.

PIER 1 IMPORTS, INC.ï  2014 Form 10-K9

Failure to protect the integrity and security of individually identifiable data of the Company’s customers and employeesassociates could expose the Company to litigation and/or regulatory action and damage the Company’s reputation.

The Company receives and maintains certain personal and payment information of its customers, vendors and employees.associates. The collection and use of this information by the Company is regulated at the international, national, federal and other political subdivision levels, and is subject to certain contractual restrictions in third party contracts.third-party agreements. Although the Company has

10    PIER 1 IMPORTS, INC.ï  2016 Form 10-K

implemented processes to collect and protect the integrity and security of personal and payment information, there can be no assurance that this information will not be obtained by unauthorized persons, or collected or used inappropriately. If the security and information systems of the Company or of its internal or external business partners are compromised or its internal or external business associates fail to comply with these laws and regulations and this information is obtained by unauthorized persons, or collected or used inappropriately, it could negatively affect the Company’s reputation and marketing initiatives, as well as operations and financial results, and could result in litigation and/or regulatory action against the Company including the imposition of penalties and fines. In addition, a compromise of the Company’s systems could result in a disruption to managementoperations and require expanded resources to remediate, investigate, correct and upgrade systems. As privacy and information security laws and regulations change, the Company will incur additional costs to remain in compliance.

Failure to successfully implement new information technology systems and enhance existing systems could negatively impact the business and its financial results.

As part of the Company’s growth plan, theThe Company is investingregularly invests in new information technology systems and implementingimplements modifications and upgrades to existing systems. These investments include replacing legacy systems, making changes to existing systems, building redundancies, acquiring new systems and hardware with updated functionality and “cloud”-basedcloud-based solutions such as software-as-a-service solutions and data storage. The Company believes it is taking appropriate actions to ensure the successful implementation of these initiatives, including the testing of new systems and the transfer of existing data, with minimal disruptions to the business. However, there can be no assurance the Company has anticipated all potential risks. Failure to successfully implement these initiatives could negatively impact the business and its financial results.

The Company’s business operations, including the expansion of the Company’se-Commerce website, hasare subject to inherent cybersecurity risks and e-Commerce related fraud that may disrupt its business and negatively impact the Company’s financial results and reputation.

The Company’s e-Commerce functionality has increased the Company’s exposure to cybersecurity risks.risks and e-Commerce related fraud. A compromise of its security systems could result in a service disruption, or customers’, employees’associates’ or vendors’ personal or payment information or the Company’s proprietary information being obtained by unauthorized users. Although the Company has implemented processes to mitigate the risks of security breaches, and cyber incidents and e-Commerce related fraud, there can be no assurance that such an attackevents will not occur. Any breach of the Company’s securityThese events could result in violation of privacy laws, potential litigation or regulatory action, increased costs and a loss of consumer confidence in its security measures, all of which could have a negative impact on the Company’s financial results and its reputation.

Failure to maintain positive brand perception and recognition could have a negative impact on the Company’s financial results and reputation.

Maintaining a good reputation is critical to the Company’s business. The considerable expansion in the use of social media over recent years has increased the risk that the Company’s reputation could be negatively impacted in a short amount of time. If the Company is unable to quickly and effectively respond to such incidents,occurrences of negative publicity through social media or otherwise, it may suffer declines in customer loyalty and traffic, vendor relationship issues, diversion of management’s time to respond and other adverse effects, all of which could negatively impact the Company’s financial results and its reputation.

Regulatory Risks

The Company is subject to laws and regulatory requirements in many jurisdictions. Changes in these laws and requirements, or interpretations of them, may result in additional costs to the Company, including the costs of compliance as well as potential penalties and fines for non-compliance.

Legislation on a local, regional, state, national or global level has the potential to have a negative effect on the Company’s profitability or ability to operate its business. Compliance with certain legislation carries with it significant costs. The Company is subject to oversight by many governmental and quasi-governmental agencies in the course of operating its business because of

10    PIER 1 IMPORTS, INC.ï  2014 Form 10-K

its numerous locations, large number of employees,associates, contact with consumers and importation and exportation of product. In addition, the Company is subject to regulations regarding consumer product quality and safety standards. Complying with regulations may cause the Company to incur significant expenses, including the costs associated with periodic audits.audits and recalls. Failure to comply may also result in damage to the Company’s reputation or additional costs in the form of litigation, financial penalties and fines.fines or business interruptions.

PIER 1 IMPORTS, INC.ï  2016 Form 10-K11

The Company operatesconducts business in many taxing jurisdictions, including foreign countries. In mostmany of these jurisdictions, the Company ismay be required to pay or collect import duties, national, state and local sales taxes or similar taxes at the point of sale or delivery of merchandise and remit themsuch amounts to the appropriate taxing authority.authorities. The Company is also subject to income taxes, excise taxes, franchise taxes, payroll taxes and other special taxes. The Company is also required to maintain various kinds of business and commercial licenses to operate its stores and other facilities. Rates of taxation are beyond the Company’s control, and increases in such rates or taxation methods and rules could have a negative impact on the Company’s financial results. Failure to comply with laws concerning the collection and remittance of taxes and with licensing requirements could also subject the Company to financial penalties and fines or business interruptions.

Risks Associated with International Trade

As an importer and retailer of imported merchandise, the Company is subject to certain risks that typically do not affect retailers of domestically produced merchandise.

The Company must order merchandise well in advance of delivery and generally takes title to the merchandise at the time it is loaded for transport to designated U.S. destinations. Global political unrest, war, threats of war, terrorist acts or threats, especially threats to foreign and U.S. ports and piracy, disruption in the operation of the international portion of the Company’s supply chain, labor unrest or natural disasters could adversely affect the Company’s ability to import merchandise from certain countries. Although the Company pays for the vast majority of its merchandise in U.S. dollars, fluctuations in foreign currency exchange rates and the relative value of the U.S. dollar, restrictions on the convertibility of the dollar and other currencies, duties, preferential trade agreements including general system of preferences, taxes and other charges on imports, rising labor costs and cost of living in foreign countries, dock strikes, worker strikes, import quota systems and other restrictions sometimes placed on foreign trade can affect the price, delivery and availability of imported merchandise as well as exports to the Company’s stores in other countries. The inability to import merchandise from China and other countries, unavailability of adequate shipping capacity at reasonable rates, or the imposition of significant tariffs could have a negative effect on the financial results of the Company. Ocean carriage and freight costs contribute a substantial amount to the cost of imported merchandise. Monitoring of foreign vendors’ compliance with applicable laws and Company standards, including quality and safety standards and social compliance issues, is more difficult than monitoring of domestic vendors.

Governmental agencies have the authority to enforce trade agreements, resolve trade disputes and control market access to goods and services. Governments may also impose trade sanctions on foreign countries that are found to violate trade agreements or maintain laws or practices that are unjustifiable and restrict commerce. In these situations, governments may increase duties on imports from one or more foreign countries. The Company could be negatively affected by the imposition of trade sanctions.

The governments of the countries in which the Company does business maintain a variety of additional trade laws under which the Company’s ability to import may be affected from time to time, including antidumping laws, countervailing duty laws, safeguardssafeguard laws, and laws designed to protect intellectual property rights. Although the Company may not be directly involved in a particular trade dispute under any of these laws, its ability to import, or the terms and conditions under which it can continue to import, may be affected by the outcome of such disputes.

The Company imports merchandise from countries around the world and as a result may be affected from time to time by antidumping petitions alleging that foreign manufacturers are selling their own products at prices that are less than the prices that they charge in their home country market or in third country markets or at less than their cost of production. Such petitions, if successful, could significantly increase import duties on those products. In that event, the Company might decide to pay the increased duties, thereby reducing gross profits or increasing the price to consumers of the affected products. Alternatively, the Company might decide to source the product or a similar product from a different country not subject to increased duties or else discontinue the importation and sale of the product.

Dispute resolution processes in recent years have been utilized to resolve disputes regarding market access between the European Union, China, the United States and other countries. In some instances, these trade disputes can lead to threats by countries of sanctions against each other, which can include import prohibitions and increased duty rates on imported items. The Company considers any agreement that reduces tariff and non-tariff barriers in international trade to be beneficial to its business. Any type of sanction on imports is likely to increase the Company’s import costs or limit the availability of merchandise purchased from sanctioned countries. In that case, the Company may be required to seek similar merchandise from other countries on terms that could be materially less favorable.

12PIER 1 IMPORTS, INC.  ï  20142016 Form 10-K11

Risks Relating to Liquidity

If the Company is unable to generate sufficient cash flows from operations, it may not be able to fund its obligations, including debt related payments and capital expenditure requirements. Insufficient cash flows from operations could result in the substantial utilization of the Company’s secured revolving credit facility or similar financing, which may limit the Company’s ability to conduct certain activities.

The Company is dependent upon generating sufficient cash flows from operations to fund its obligations. The Company maintains a secured revolving credit facility to enable it to issue merchandise and special purpose standby letters of credit as well as to fund working capital requirements. Borrowings under the secured revolving credit facility are subject to a borrowing base calculation consisting of a percentage of certain eligible assets of the Company and are subject to advance rates and commercially reasonable reserves. Substantial utilization of the available borrowing base will result in various restrictions on the Company, including restrictions on the ability of the Company to repurchase its common stock or pay dividends and an increase in the lender’s control over the Company’s cash accounts.See Note 4 of the Notes to Consolidated Financial Statements for additional discussion — Secured Revolving Credit Facility and Term Loan Facility. The Company entered into a senior secured term loan facility in April of 2014. The proceeds of borrowing under the facility were used for general corporate purposes, including working capital needs, capital expenditures, and share repurchases and dividends permitted under the facility. Those borrowings have increased the Company’s interest expense and financial leverage. The facility contains a number of affirmative and restrictive covenants that may also limit the Company’s actions. Significant decreases in cash flows from operations could result in the Company borrowing increased amounts under its credit facilities to fund operational needs and increased utilization of letters of credit. These actions could result in the Company being subject to increased restrictions as described above and increase interest expense and overall leverage.

A disruption in the global credit and equity markets could negatively impact the Company’s ability to obtain financing on acceptable terms.

In the future, the Company could become dependent on the availability of adequate capital to fund its operations. Disruption in the global credit and equity markets and future disruptions in the financial markets could negatively affect the Company’s ability to enter into new financing agreements or obtain funding through the sale of Company securities. A decline in economic conditions could also result in difficulties for financial institutions and other parties that the Company does business with, which could potentially affect the Company’s ability to access financing under existing arrangements or to otherwise recover amounts as they become due under the Company’s contractual agreements. The inability of the Company to obtain financing as needed on acceptable terms to fund its operations may have a negative impact on the Company’s business and financial results.

Insufficient cash flows from operations could result in the substantial utilization of the Company’s secured revolving credit facility or similar financing, which may limit the Company’s ability to conduct certain activities.

The Company maintains a secured revolving credit facility to enable it to issue merchandise and special purpose standby letters of credit as well as to fund working capital requirements. Borrowings under the secured revolving credit facility are subject to a borrowing base calculation consisting of a percentage of certain eligible assets of the Company and are subject to advance rates and commercially reasonable reserves. Substantial utilization of the available borrowing base will result in various restrictions on the Company, including restrictions on the ability of the Company to repurchase its common stock or pay dividends and an increase in the lender’s control over the Company’s cash accounts.See Note 4 of the Notes to Consolidated Financial Statements for additional discussion regarding the Company’s secured revolving credit facility. The Company expects to close a new $200 million senior secured term loan facility on or about April 30, 2014. Proceeds from the transaction will be used for general corporate purposes, including working capital needs, capital expenditures, share repurchases and dividends permitted under the agreement. The senior secured term loan facility will increase the Company’s interest expense and financial leverage. The senior secured term loan facility is expected to contain a number of affirmative and restrictive covenants that may also limit the Company’s actions. Significant decreases in cash flows from operations could result in the Company borrowing increased amounts under its credit facilities to fund operational needs and increased utilization of letters of credit. These could result in the Company being subject to the above restrictions.

Item 1B. Unresolved Staff Comments.

None.

12PIER 1 IMPORTS, INC.  ï  20142016 Form 10-K13

Item 2. Properties.

The Company leases its corporate headquarters, retail stores and the majority of its distribution and fulfillment centers. The Company has an operating lease for its corporate headquarters located in Fort Worth, Texas, which included approximately 313,000386,000 square feet of office space as of March 1, 2014. The present value of the Company’s minimum future operating lease commitments, discounted at 10%, totaled approximately $878.3February 27, 2016. Total gross square footage for all stores was 10.3 million and retail square footage was 8.2 million as of March 1, 2014.February 27, 2016. The following table sets forth the distribution of Pier 1 Imports’Company’s U.S. and Canadian stores by state and province as of March 1, 2014:February 27, 2016:

The Company currently owns or leases distribution and fulfillment center space of approximately 4.15.5 million square feet. The Company also acquires temporary distribution center space from time to timeperiodically through short-term leases. As of March 1, 2014,February 27, 2016, the Company owned or leased under operating leases the following distribution center properties, which include distribution and/or fulfillment centers in or near the following cities:

14PIER 1 IMPORTS, INC.  ï  20142016 Form 10-K13

Item 3. Legal Proceedings.

The Company isOn August 28, 2015, a party to various legal proceedings and claimsputative class action complaint was filed in the ordinary courseUnited States District Court for the Northern District of Texas — Dallas Division, captioned Kathleen Kenney, Plaintiff, v. Pier 1 Imports, Inc., Alexander W. Smith and Charles H. Turner, Defendants (the “Kenney Case”), alleging violations under the Securities Exchange Act of 1934, as amended. The lawsuit was filed on behalf of a purported putative class of investors who purchased or otherwise acquired stock of Pier 1 Imports, Inc. between December 19, 2013 through February 10, 2015, and seeks to recover damages purportedly caused by the Defendants’ alleged violations of the federal securities laws and to pursue remedies under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaint seeks certification as a class action, unspecified compensatory damages plus interest and attorneys’ fees.

A second related case, captioned Town of Davie Police Pension Plan, Plaintiff, v. Pier 1 Imports, Inc., Alexander W. Smith and Charles H. Turner, Defendants (the “Davie Case”), was filed in the United States District Court for the Northern District of Texas — Dallas Division on October 21, 2015 making similar allegations on behalf of a purported putative class of investors who purchased or otherwise acquired stock of Pier 1 Imports, Inc. between December 19, 2013 and September 24, 2015.

The Kenney Case and the Davie Case have been consolidated into a single action, captioned Town of Davie Police Pension Plan, Plaintiff, v. Pier 1 Imports, Inc., Alexander W. Smith and Charles H. Turner, Defendants. The consolidated action is pending in the United States District Court for the Northern District of Texas — Dallas Division. Although the ultimate outcome of litigation cannot be predicted with certainty, the Company believes that this lawsuit is without merit and intends to defend against it vigorously.

During fiscal years 2016, 2015 and 2014, there were various claims, lawsuits, inquiries and pending actions against the Company incident to the operations of its business. The Company believesconsiders these other matters to be ordinary and routine in nature. The Company maintains insurance against the consolidated class action noted in the preceding paragraphs and liability insurance against most of the other matters noted in this paragraph. It is the opinion of management, after consultation with counsel, that the outcomeultimate resolution of thesesuch matters will not have a material adverse effect, either individually or in the aggregate, on itsthe Company’s consolidated financial position, results of operations or liquidity.

Item 4. Mine Safety Disclosures.

Not applicable.

14PIER 1 IMPORTS, INC.  ï  20142016 Form 10-K15

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Prices of Common Stock

The following table shows the high and low closing sale prices of the Company’s common stock on the New York Stock Exchange (the “NYSE”(“NYSE”), as reported in the consolidated transaction reporting system for each quarter of fiscal 20142016 and 2013.2015.

Number of Holders of Record

The Company’s common stock is traded on the NYSE under the symbol “PIR.” As of April 23, 2014,25, 2016, there were approximately 7,0006,500 shareholders of record of the Company’s common stock.

Dividends

The Company declared cash dividends on its outstanding shares of $0.05common stock of $0.07 per share in each of the first three quarters of fiscal 2014, and declared a cash dividend of $0.06 per share in the fourth quarter of fiscal 2014,2016, which totaled $21.7$23.7 million in cash dividends paid during fiscal 2014.2016. The Company declared cash dividends on its outstanding shares of $0.04common stock of $0.06 per share in each of the first three quarters of fiscal 2013, and declared a cash dividend of $0.05 per share in the fourth quarter of fiscal 2013,2015, which totaled $18.0$21.6 million in cash dividends paid during fiscal 2013. The Company did not pay any cash dividends in fiscal year 2012.2015. On April 3, 2014,13, 2016, subsequent to year end, the Company announced a $0.06$0.07 per share quarterly cash dividend on the Company’s outstanding shares of common stock. The $0.06$0.07 per share quarterly cash dividend will be paid on May 7, 2014,11, 2016, to shareholders of record on April 23, 2014.27, 2016. The Company’s decision to pay a cash dividend policy depends upon the earnings, financial condition and capital needs of the Company and other factors deemed relevant by the Company’s Board of Directors.

As of March 1, 2014,February 27, 2016, the Company was not precluded from paying cash dividends or repurchasing the Company’s common stock under the secured revolving credit facility.facility (“Revolving Credit Facility”) or the senior secured term loan facility (“Term Loan Facility”). The Company’s secured revolving credit facilityRevolving Credit Facility may limit certain investments and, in some instances, limit payment of cash dividends and repurchases of the Company’s common stock. The Company will not be restricted from paying dividends unless credit extensions on the Revolving Credit Facility line result in availability over a specified period of time that is projected to be less than 17.5% of the lesser of either $350$350.0 million or the calculated borrowing base, subject to the Company meeting a fixed charge coverage requirement when availability over the same specified period of time is projected to be less than 30%30.0% of the lesser of either $350$350.0 million or the calculated borrowing base. The Company expects to close a new $200 million senior secured term loan facility on or about April 30, 2014. This facility is expected to includeAdditionally, the Term Loan Facility includes restrictions on the Company’s ability to, among other things, incur or guarantee additional indebtedness, pay dividends on, or redeem or

16PIER 1 IMPORTS, INC.  ï  20142016 Form 10-K15

ability to, among other things, incur or guarantee additional indebtedness, pay dividends on, or redeem or repurchase shares of the Company’s capital stock, make certain acquisitions or investments, materially change the business of the Company, incur or permit to exist certain liens, enter into transactions with affiliates or sell the Company’s assets to, or merge or consolidate with or into, another company, in each case subject to certain exceptions.See Note 4 of the Notes to Consolidated Financial Statements for furtheradditional discussion ofregarding the Company’s secured credit facilities.Revolving Credit Facility and Term Loan Facility.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

December 1, 2013November 29, 2015 through March 1, 2014February 27, 2016 — The following table provides information with respect to purchases of common stock of the Company made during the three months ended March 1, 2014,February 27, 2016, by Pier 1 Imports, Inc. or any “affiliated purchaser” of Pier 1 Imports, Inc., as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934.

Fiscal years 2014, 20132016, 2015 and 20122014— The following table summarizes the Company’s total share repurchases of its common stock during fiscal 2014, 20132016, 2015 and 2012:2014:

During fiscal 2014,2016, the Company acquired 281,400withheld 87,760 shares of its common stock from employeesassociates to satisfy tax withholding obligations that arose upon vesting of restricted stock granted pursuant to approved plans.

During fiscal 2014,2016, the Company repurchased shares of the Company’s common stock for a total cost of $203.9 million, and of that amount $11.6 million were settled in March of fiscal 2015.$75.0 million. Subsequent to year end, through April 20, 2016, under the October 2013 $200 millionApril 2014 program, the Company utilized a total of $96.1$0.8 million to repurchase 5,071,812120,000 shares of the Company’s common stock at a weighted average price per share of $18.95$7.01 and as of April 10, 2014, repurchases under the October 2013 program were completed. Subsequent to year end, on April 10, 2014, the Company announced a new $200$46.3 million common stock share repurchase program, and as of April 25, 2014, the entire amount remained available for repurchase.further share repurchases of common stock under that program.

16PIER 1 IMPORTS, INC.  ï  20142016 Form 10-K17

Performance Graph

The following graph compares the five-year cumulative total shareholder return for the Company’s common stock against the Standard & Poor’s 500 Stock Index and the Standard & Poor’s Retail Stores Composite Index. The annual changes for the five-year period shown on the graph are based on the assumption, as required by SEC rules, that $100 had been invested in the Company’s stock and in each index on February 28, 2009,26, 2011, and that dividends were reinvested. The total cumulative dollar returns shown on the graph represent the value that such investments would have had on March 1, 2014.February 27, 2016. The information used in the graph below was obtained from Bloomberg L.P.

PIER 1 IMPORTS, INC. STOCK PERFORMANCE GRAPH

18PIER 1 IMPORTS, INC.  ï  20142016 Form 10-K17

Item 6. Selected Financial Data.

FINANCIAL SUMMARY

18PIER 1 IMPORTS, INC.  ï  20142016 Form 10-K19

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

MANAGEMENT OVERVIEW

Introduction

Pier 1 Imports, Inc. is the original global importer of home décor and furniture. The Company directly imports merchandise from many countries, and sells a wide variety of decorative accessories, furniture, candles, housewares, gifts and seasonal products in its stores and through the Company’s website, Pier1.com. TheAs of February 27, 2016, the Company conducts business as one operating segment and operatesoperated 1,032 stores in the United States and Canada under the name Pier 1 Imports. As of March 1, 2014, the Company operated 1,072 stores in the United States and Canada. Fiscal 2014 and 2012 consisted of 52-week years and fiscal 2013 was a53-week year. The following discussion and analysis of financial condition, results of operations, and liquidity and capital resources should be read in conjunction with the accompanying audited Consolidated Financial Statements and notes thereto, which can be found in Item 8 of this report.

Fiscal 2014 was a transformational year for Pier 1 Imports. AlthoughOver the past several years, the Company encountered some challenges duringhas transformed from a brick-and-mortar retailer to an omni-channel retailer, with the yearobjective of seamless integration across stores, desktop and concluded with a tough fourth quarter, pressured by significant weather disruption, it made excellent progress in the executionmobile devices. As part of its ‘1 Pier 1’ strategy, which istransformation to an omni-channel retailer the Company re-launched its e-Commerce capabilities including its website, Pier1.com, during fiscal 2013. The Company’s plan to evolve from a store-only business model to one with full omni-channel capabilities. Throughfocus through the ‘1 Pier 1’ omni-channel strategy is to ensure that customers have an extraordinary experience, regardless of how they shop. By enabling the customer to interact with the brand both in-store and online, the Company expects to maximize selling opportunities, extend brand reach and capture greater market share. The Company’s focus is to ensure that customers have an extraordinary experience, regardless of how they shop. The ‘1 Pier 1’ strategy has required investment over the last three years in systems, distribution and fulfillment centers, call centers, distribution networksnetwork and store development. To support the Company’s growth, the Company has built greater flexibilitydevelopment, including new in-store selling tools such as swatch stations, computers and capacity into the distribution network during fiscal 2014, through the introduction of in-home delivery and Express Request, the Company’s special order program. The Company is also actively developing atablets. This strategy to utilize all distribution centers as fulfillment centers for large items, further leveraging its single inventory.

The Company continued to focus on the quality, not the quantity, of its real estate, strengthening its real estate portfolio through new store openings, which were primarily strategic relocations, and completing renovations and refurbishments in numerous existing locations. The Company is on track to have 10% of its sales generated through its website Pier1.com by the end of fiscal 2016, as set out in its three-year growth plan. During fiscal 2014, the Company’s e-Commerce sales accounted for 4.0% of total sales. Additionally, the Company now expects to reach $225 of sales per retail square foot and operating margins of 11% to 11.5% by the end of fiscal 2016. During fiscal 2014, the Company continued implementation of this plan through a number of strategic projects. The Company believes these projects provide the foundation for long-term success. The plan also includes returning valuea continuing commitment to return excess capital to shareholders through share repurchases and quarterly cash dividends.

OneFiscal 2015 capped a multi-year period of the critical components of ‘1 Pier 1’ is the new POS system, which was fully implemented in August 2013. The stores are now positioned to more effectively serve as a gateway to the Company’s e-Commerce website and the e-Commerce website continues to serve as a gateway to the stores. Since the launch of Pier1.com during July of fiscal 2013, traffic to the website has increased significantly, andheavy investment for the Company has seen progressive increases in e-Commerce sales as a percentagesupport of total Company sales.its transformation to an omni-channel retailer, including investment in systems, distribution and fulfillment centers, call centers, distribution network and store development. In addition,fiscal 2016, the Company executed website upgrades duringmoderated capital expenditures by over one-third to $51.8 million, from $81.9 million in fiscal 2014, which continue to enhance2015. During fiscal 2016 capital expenditures were deployed toward infrastructure and technology development, including the customer experiencedata excellence initiative, supply chain upgrades, existing store improvements and improve back-office systems.17 new store openings. Capital expenditures in fiscal 2017 are expected to be approximately $55 million to support ongoing investments in technology, stores and distribution centers.

Fiscal 2014 total2016 net sales increased 3.9%0.4% from the prior year and company comparable store sales increased 2.4%0.7%. The increases were primarily attributable to the increase in e-Commerce sales, specifically increases in online traffic, online conversion and average ticket and conversion, partly offset by a decrease in traffic versuscompared to last year. The difference betweenDuring fiscal 2016, e-Commerce sales accounted for 16.1% of net sales compared to 11.1% in the previous fiscal year. E-Commerce sales were the primary driver of total sales growth in fiscal 2016, and comparable storethe Company expects this trend to continue in fiscal 2017. A significant portion of e-Commerce sales growth is primarily attributable totouch the retail stores, opened during fiscal 2014either by originating on in-store PCs and direct-to-customertablets, or through in-store pick-up. As e-Commerce sales which are both excluded from the comparable store sales calculation. Sales per retail square foot were $202 for fiscal 2014, compared to $198 for fiscal 2013. The increase in sales per retail square foot was primarily the result of an increase in comparable store sales which was driven by an increase in average tickethave grown, and conversion, offset by a decrease in traffic compared to the prior year. Management believes that the Company’s sales willextent they continue to improvegrow, delivery and fulfillment net costs have also increased and are expected to continue to increase. The Company began to leverage these costs as a resultpercentage of its unique and special merchandise assortments, superior in-store service and enhanced e-Commerce experience.fulfilled sales in fiscal 2016.

Gross profit for fiscal 20142016 was 42.1%$705.0 million, or 37.3% of sales, compared to 43.6%$768.5 million, or 40.8% of sales, in the same period last year, a decline of 150350 basis points. Merchandise margin (the result of adding back delivery and fulfillment net costs and store occupancy costs to gross profit — see “Reconciliation of Non-GAAP Financial Measures”) was $1.046 billion for fiscal 2016, or 55.3% of sales, compared to $1.100 billion, or 58.4% of sales for fiscal 2015. The year-over-year decline in merchandise margin as a percentage of sales was primarily dueattributable to higher promotional cadence versus last year, part of which was necessary to clear through holiday inventory in light ofand clearance activity and inventory-related inefficiencies within the impact inclement weather had on store traffic in the fourth quarter, and increased sales through the direct-to-customer channel.Company’s distribution center network. Store occupancy costs during fiscal 2014 remained relatively flat2016 were leveraged slightly at 16.3%15.7% of sales, compared to 16.2% of sales15.8% during fiscal 2013.

2015.

PIER 1 IMPORTS, INC.ï  2014 Form 10-K19

Operating income for fiscal 20142016 was 9.9%4.0% of sales, compared to 11.7% of sales6.8% in fiscal 2013. The year-over-year decline was attributable to the promotional cadence impact on gross profit and increased2015. Fiscal 2016 EBITDA (earnings before interest, taxes, depreciation and amortization which has resulted from continued capital investment— see “Reconciliation of Non-GAAP Financial Measures”) was $125.2 million compared to $176.3 million in support offiscal 2015. Net income for fiscal 2016 was $39.6 million, or $0.46 per diluted share, compared to $75.2 million, or $0.82 per diluted share for fiscal 2015.

As the Company’s growth initiatives.

Capital expenditures for the year totaled $80.3 million. Of that amount, approximately half was deployed toward the opening of 27 new Pier 1 Imports stores, the refurbishment of approximately 50 locations, major remodels at six locationstransition to an omni-channel retailer continues to mature, strategies and the rollout of new merchandise fixtures and lighting in numerous existing locations. The remaining capital expenditures were primarily utilized for technology and infrastructure initiatives, including e-Commerce and the new point-of-sale system. Capital expenditures in fiscal 2015 are expected to be at similar levels to fiscal 2014 expenditures, with approximately half allocated to stores and other leasehold improvements and the balance being deployed toward technology and infrastructure.

The Company’s share repurchase program announced in December 2012 was completed on September 30, 2013, with total repurchases during fiscal 2014 of 4,525,805 shares at a weighted average cost of $22.10 per share for a total cost of $100.0 million. On October 18, 2013, the Company announced that its Board of Directors authorized a $200 million share repurchase program. As of March 1, 2014, the Company had repurchased 5,262,452 shares of its common stock under the October 2013 program at a weighted average cost of $19.74 per share for a total cost of $103.9 million and $96.1 million remained available for further repurchases. Of the $203.9 million in total repurchases in fiscal 2014, $11.6 million were settled in March of fiscal 2015. Amounts repurchased but settled subsequent to year end are considered non-cash financing activities and are excluded from the Consolidated Statements of Cash Flows. Subsequent to year end, the Company utilized a total of $96.1 million to repurchase 5,071,812 shares of the Company’s common stock at a weighted average price per share of $18.95 and as of April 10, 2014, the October 2013 program was completed. On April 3, 2014, subsequent to year end, the Company announced a $0.06 per share quarterly cash dividend on the Company’s outstanding shares of common stock to shareholders of record on April 23, 2014, which is payable on May 7, 2014. Subsequent to year end, on April 10, 2014, the Company announced a new $200 million common stock share repurchase program, and as of April 25, 2014, the entire amount remained available for repurchase.

Overview of Business

The Company’s key financial and operational indicators used by management to evaluate the performance of the business include the following (trends for these indicators are explained in the comparative discussions of this section):

Stores included in the comparable store sales calculation are those stores thatplans have been open sinceinitiated and enhanced to drive meaningful top-line sales growth, restore merchandise margin and reduce costs across the beginning oforganization. These include, but are not limited to: improving merchandise assortments; enhancing marketing programs; optimizing the preceding fiscal year. In addition, orders placed online for store pick-up were included in the calculation. Remodeled or relocated stores are included if they meet specific criteria. Those criteria include the following: the new store is within a specified distance serving the same market, no significant change in store size, and no significant overlap or gap between the closing and reopening. Such stores are included in the comparable store sales calculation in the first full month after the re-opening. If a relocated or remodeled store does not meet the above criteria, it is excluded from the calculation until it meets the Company’s established definition of a comparable store.real

20    PIER 1 IMPORTS, INC.  ï  20142016 Form 10-K

FISCAL YEARS ENDED MARCH 1, 2014 AND MARCH 2, 2013estate portfolio; reducing store and administrative expenses; improving supply chain efficiencies; managing inventory levels; improving promotional effectiveness; and moderating capital expenditures. In the near-term, profitability will be challenged by a planned increase in media spending, expected continuing promotional and clearance activity and the cost of recent distribution center network inefficiencies.

The Company has set out several key guideposts by which to measure the Company’s performance in achieving its objectives, which are:

The Company closed 33 stores, on a net basis, during fiscal 2016. These closures are consistent with, and a part of, the real estate optimization plan previously announced by the Company. The real estate optimization plan includes three parts: (1) closure of approximately 100 stores over a three to four fiscal-year period which commenced in fiscal 2016, primarily through natural lease expirations and relocations; (2) a more modest new store opening and relocation program; and (3) ongoing renegotiations of rent commitments.

Net SalesThe Company entered into a $200 million Term Loan Facility. As of February 27, 2016, the Company had $197.0 million outstanding under its $200 million Term Loan Facility. See“Liquidity and Capital Resources — Revolving Credit Facility” and “Liquidity and Capital Resources — Term Loan Facility” below for more information.

Net sales consisted almost entirelyAs of salesFebruary 27, 2016, the Company had repurchased 12,669,435 shares of its common stock under the April 2014 program at a weighted average cost of $12.06 per share for a total cost of $152.8 million, and $47.2 million remained available for further repurchases. Subsequent to retail customers,year end, through April 20, 2016, under the April 2014 program, the Company utilized a total of $0.8 million to repurchase 120,000 shares of the Company’s common stock at a weighted average price per share of $7.01 and $46.3 million remained available for further repurchases under that program. On April 13, 2016, subsequent to year end, the Company announced a $0.07 per share quarterly cash dividend on the Company’s outstanding shares of common stock to shareholders of record on April 27, 2016, which is payable on May 11, 2016.

Overview of Business

The Company has revised the presentation of the reporting of credit and debit card fees (“Credit Card Fees”) for all periods presented. The Company previously reported Credit Card Fees as a reduction to net of discounts and returns, but also included delivery revenues and wholesale sales and royalties. Saleshas revised its presentation to report Credit Card Fees as a component of selling, general and administrative (“SG&A”) expenses. This revised presentation results in an immaterial increase to both net sales and SG&A expenses. There is no impact to operating income, net income, the balance sheet or statement of cash flows.

The Company’s key financial and operational indicators used by retail concept during fiscal years 2014 and 2013 were as follows (in thousands):management to evaluate the performance of the business include the following (trends for these indicators are explained in the comparative discussions below).

Net sales during fiscal 2014 were $1.772 billion for the 52-week period, an increase of 3.9%, from $1.705 billion for the prior fiscal year (53-week period). The increase in sales for the fiscal year was comprised of the following components (in thousands):

The total sales growth for fiscal 2014 was primarily the result of an increase in comparable store sales, direct-to-customer sales and the net increase in the number of stores, partially offset by the 53^rd week of sales in fiscal 2013. Comparable store sales increased 2.4% for the year and were driven by an increase in average ticket and conversion, offset by a decrease in traffic compared to the prior year. The Company’s net sales from Canadian stores were subject to fluctuation in currency conversion rates. These fluctuations contributed to a 40 basis point decrease in the comparable store calculation in fiscal 2014 compared to fiscal 2013. The Company’s e-Commerce sales accounted for 4.0% of total sales for fiscal 2014 compared to approximately 1.0% for fiscal 2013. E-Commerce sales are comprised of both customer orders placed online which were shipped directly to the customer from a fulfillment center (“direct-to-customer”) and those picked up by the customer at a store location (“store pick-up”).

The Company’s proprietary credit card program provides both economic and strategic benefits. Sales on the Pier 1 rewards credit card comprised 30.4% of U.S. store sales compared to 25.7% last year. As of March 1, 2014, the Company operated 1,072 stores in the United States and Canada, compared to 1,062 stores at the end of fiscal 2013.

A summary reconciliation of the Company’s stores open at the beginning of fiscal 2014, 2013 and 2012 to the number open at the end of each period is as follows (openings and closings include relocated stores):

PIER 1 IMPORTS, INC.  ï  20142016 Form 10-K    21

CostCompany Comparable Sales Calculation — For fiscal 2016 and fiscal 2015, the company comparable sales calculation included sales that were fulfilled, ordered or sold in a store, provided that the store was open prior to the beginning of Sales and Gross Profit

Cost of sales were 57.9% expressed as a percentage of sales inthe preceding fiscal 2014, compared to 56.4% of sales in fiscal 2013. Gross profit, which is calculated by deducting store occupancy costs from merchandise margin dollars, was 42.1% expressed as a percentage of sales in fiscal 2014, compared to 43.6% a year ago. The year-over-year gross profit decline as a percentage of sales was primarily due to higher promotional and clearance activity versus last year and increased sales through the direct-to-customer channel, which have reduced merchandise margin as compared to stores.

Store occupancy costs during fiscal 2014 were $288.4 million, or 16.3% of sales, compared to $276.5 million, or 16.2% of sales, during fiscal 2013. Most occupancy costs for the fiscal year remained relatively constant as a percent of sales while rent, and repair and maintenance increased slightly. Overall, occupancy costs increased in dollars when compared to the samewas still open at period last year primarily due to the increase in new store openings.

Operating Expenses and Depreciation

Selling, general and administrative expenses were $531.2 million in fiscal 2014, compared to $513.1 million in fiscal 2013, an increase of $18.1 million. This increase is largely the result of increases in variable store costs including store payroll and the continued investment in marketing of 5% of sales. This increase was due in part to the opening of a net ten new stores during fiscal 2014.end. In addition, relatively fixed expenses increasedorders placed online as direct-to-customer sales (as defined below) were included in the calculation, as a result of additional headcount and software-related expenses in supportdirect-to-customer sales being active prior to the beginning of the preceding fiscal year. Remodeled or relocated stores are included if they meet specific criteria. Those criteria include the following: the new store is within a specified distance serving the same market, no significant change in store size and no significant overlap or gap between the store closing and reopening. Such stores are included in the company comparable sales calculation in the first full month after the reopening. If a relocated or remodeled store does not meet the above criteria, it is excluded from the calculation until it meets the Company’s ‘1 Pier 1’ strategy. These increasesestablished definition as described above.

For the fiscal 2014 company comparable sales calculation, sales included in the calculation were partly offset by a decreasedetermined in short-term incentives due to the Companysame manner as above, except that direct-to-customer sales were excluded because those sales did not achieving its profit goals under its short-term incentive plan in fiscal 2014. As a percentagemeet the criteria for inclusion at that time.

FISCAL YEARS ENDED FEBRUARY 27, 2016 AND FEBRUARY 28, 2015

Net Sales

Net sales consisted almost entirely of sales selling, generalto retail customers, net of discounts and administrative expensesreturns, but also included delivery revenues and wholesale sales and royalties. Net sales during fiscal years 2016 and 2015 were 30.0%as follows (in thousands):

Net sales induring fiscal 2014, compared to 30.1% of sales in fiscal 2013.

Depreciation and amortization for fiscal 2014 was $38.9 million, representing2016 were $1.892 billion, an increase of $7.9 million0.4%, from last year’s depreciation and amortization expense of $31.0 million. This increase$1.885 billion in the prior fiscal year. Company comparable sales increased 0.7% for the year which was primarily the result of capital expendituresan increase in fiscal 2014, partially offset by certain assets becoming fully depreciatedonline traffic, online conversion and store closures.

In fiscal 2014, the Company recorded operating income of $175.5 million, or 9.9% of sales,average ticket compared to $199.0 million, or 11.7%the prior year. The Company’s e-Commerce sales accounted for 16.1% of net sales for fiscal 2013.

Nonoperating Income and Expense

Nonoperating expense2016 compared to 11.1% for fiscal 2014 was $0.9 million,2015. E-Commerce sales are comprised of both customer orders placed online which were shipped directly to the customer (“direct-to-customer”) and those picked up by the customer at a store location (“store pick-up”).

Sales at the Company’s Canadian stores are subject to fluctuations in currency conversion rates. The year-over-year decline in the value of the Canadian Dollar, relative to the U.S. Dollar, negatively impacted net sales and company comparable sales by approximately 100 basis points in fiscal 2016. Sales on the Pier 1 rewards credit card comprised 34.2% of U.S. sales for the twelve months ended February 27, 2016, compared to nonoperating income of $2.0 million in fiscal 2013. 32.4% last year. The Company’s proprietary credit card program provides both economic and strategic benefits to the Company.

The increase in expensenet sales for fiscal 2016 was primarily the resultcomprised of the completion of deferred gain recognition during the first quarter of fiscal 2013 which related to transactions with the Company’s former proprietary credit card provider. Additionally, in conjunction with the adjustment for uncertain income tax positions discussed below, $2.8 million of accrued interest was reversed during the second quarter of fiscal 2013.following components (in thousands):

Income Taxes

The Company had an effective tax rate of 38.4% and recorded an income tax provision of $67.1 million in fiscal 2014 compared to an effective tax rate of 35.6% and an income tax provision of $71.6 million in fiscal 2013. The increase in the effective tax rate was primarily due to the favorable impact of the reversal of a portion of the Company’s reserve for uncertain income tax positions for which the statute of limitations expired during the second quarter of fiscal 2013. The decreased tax provision over the prior year was due to the Company reporting lower income in fiscal 2014.

Net Income

Net income in fiscal 2014, which consisted of 52 weeks, was $107.5 million, or $1.01 per share. Net income for fiscal 2013, which consisted of 53 weeks, was $129.4 million, or $1.20 per share, which included the impact of the Company reversing a portion of its reserve for uncertain income tax positions during the second quarter of fiscal 2013.

		Net Sales
Net sales for fiscal 2015		$	1,884,557
Incremental sales growth (decline) from:
Company comparable sales			11,997
New stores opened during fiscal 2016			19,588
Stores opened during fiscal 2015			17,622
Closed stores and other			(41,534)
Net sales for fiscal 2016		$	1,892,230

22    PIER 1 IMPORTS, INC.  ï  20142016 Form 10-K

FISCAL YEARS ENDED MARCH 2, 2013 AND FEBRUARY 25, 2012

Net Sales

Net sales consisted almost entirely of sales to retail customers, net of discounts and returns, but also included delivery revenues and wholesale sales and royalties. Sales by retail concept during fiscal years 2013 and 2012 were as follows (in thousands):

Net sales during fiscal 2013 were $1.705 billion for the 53-week period, an increase of 11.2%, from $1.534 billion for fiscal 2012. The increase in sales for fiscal 2013 was comprised of the following components (in thousands):

The total sales growth for fiscal 2013 was primarily the result of an increase in store traffic and average ticket compared to fiscal 2012. Comparable store sales increased 7.5% for the year. As of March 2, 2013, the Company operated 1,062 stores in the United States and Canada, compared to 1,052 stores at the end of fiscal 2012. The Company’s net sales from Canadian stores were subject to fluctuation in currency conversion rates. These fluctuations contributed to a ten basis point decrease in the comparable store calculation in fiscal 2013 compared to fiscal 2012. Sales on the Pier 1 credit card comprised 25.7% of U.S. store sales compared to 21.2% in fiscal 2012.

A summary reconciliation of the Company’s stores open at the beginning of fiscal 2013, 20122016 and 20112015 to the number open at the end of each period is as follows (openings and closings include relocated stores):

Merchandise Margin and Gross Profit

Gross profit for fiscal 2016 was $705.0 million, or 37.3% of sales, compared to $768.5 million, or 40.8% of sales, in the same period last year, a decline of 350 basis points. Merchandise margin (the result of adding back delivery and fulfillment net costs and store occupancy costs to gross profit — see “Reconciliation of Non-GAAP Financial Measures”) was $1.046 billion for fiscal 2016, or 55.3% of sales, compared to $1.100 billion, or 58.4% of sales, for fiscal 2015. The year-over-year decline in merchandise margin as a percentage of sales was primarily attributable to promotional and clearance activity and inventory-related inefficiencies within the Company’s distribution center network. Delivery and fulfillment net costs for fiscal 2016 were $42.5 million, or 2.2% of sales, compared to $32.9 million, or 1.7% of sales, in fiscal 2015. The increase reflects the strong growth of e-Commerce. Store occupancy costs during fiscal 2016 leveraged slightly to 15.7% of sales, compared to 15.8% of sales, during fiscal 2015.

SG&A Expenses, Depreciation and Operating Income

SG&A expenses were $578.8 million in fiscal 2016, compared to $594.9 million in fiscal 2015, a decrease of $16.1 million. As a percentage of sales, SG&A expenses were 30.6% in fiscal 2016, compared to 31.6% in fiscal 2015.

SG&A expenses are summarized in the table below (in millions):