55

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“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 CompanyPier 1 Imports, Inc. and its consolidated subsidiaries (the “Company”) may also make forward-looking statements in other reports filed with the SEC,United States Securities and Exchange Commission (“SEC”), in press releases, in presentations and in material delivered to the Company’s shareholders. Forward lookingForward-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 regardingregarding: the impact of new initiatives implemented in connection with the Company’s Pier 1 2021: A New Day three-year strategic plan; the effectiveness of the Company’s marketing campaigns, merchandising and promotional strategies and customer databases; consumer spending patterns,patterns; inventory levels and values; the Company’s ability to implement planned cost control measures,measures; expected benefits from the real estate optimization initiative, including cost savings and increases in efficiency, andefficiency; risks related to U.S. import policy; 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. RisksAdditional 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;preferences and to source, ship and deliver items of acceptable quality to its U.S. distribution and fulfillment centers, stores and customers at reasonable prices and rates in a timely fashion; 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; disruptions in the Company’s e-Commercedomestic supply chain or 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; negative impacts from failure to control merchandise returns and recalls; potential impairment charges; an inability to operate in desirable locations at reasonable rental rates; competition; 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; litigation risks; risks related to imported merchandise including the health of global, national, regional, and local economicseconomies and their impact on vendors, manufacturers and merchandise; disruptionsadverse effects from changes in the global credit and equity markets; andU.S. policy related to imported merchandise; risks related to insufficient cash flows and access to capital.capital; disruption in the global credit and equity markets; factors beyond the Company’s control, including general economic and market conditions, fluctuations in the Company’s financial condition or other factors that could affect the stock price; and risks related to activist shareholders. 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.

PIER 1 IMPORTS, INC.ï  2015 Additional information concerning these risks and uncertainties is contained in this Annual Report on Form 10-K for the year ended March 3, 2018, included in Item 1A. Risk Factors.

3

PART3 I

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 stores and an e-Commercee‑Commerce website all conducting business under the name Pier 1 Imports. The Company is dedicated to offering customers exclusive, one-of-a-kind products that reflect high quality at a great value. Starting with a single store in 1962, Pier 1 Imports’ product is now available in retail stores throughout the U.S. and Canada and online at pier1.com. The Company directly imports merchandise from many countries, and sells a wide variety of decorative accessories, furniture, candles, housewares, gifts and seasonal products.

The Company announced its Pier 1 2021: A New Day three-year strategic plan in April 2018, which is focused on improving brand proposition, driving sales growth and capturing operating efficiencies. In fiscal 2019, the Company plans to invest in the tools and resources needed to execute against the plan in order to drive sales growth and profitability in subsequent years.

As of February 28, 2015,March 3, 2018, the Company had 1,0651,003 stores in the United States and Canada. In fiscal 2015,2018, the Company opened 302 new stores and closed 37 stores, approximately half17 stores. In April of which were relocations. During fiscal 2015, the Company also opened an e-Commerce fulfillment center in Columbus, Ohio, completed one store remodel and added new fixtures in all existing stores. On April 8, 2015, the Company announced that it has initiated a plan to optimize its store portfolio as partthrough (1) closure of its ‘1 Pier 1’ strategy to drive growth through its omni-channel platform, reduce store occupancy and payroll costs and improve efficiency. The Company plans to close approximately 100 stores over the nexta three years,to four fiscal-year period which commenced in fiscal 2016, primarily through natural lease expirations and relocations.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 corporate headquarters is located in Fort Worth, Texas.  

The Company has an arrangement to supply Grupo Sanborns, S.A.S.A.B. de C.V. (“Grupo Sanborns”) with Pier 1 Importsthe Company’s 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, unless those agreements are renewed, and extended. The agreements are structuredClaroshop.com, S.A.P.I. de C.V., primarily in a manner which substantially insulates the Company from currency fluctuations in the value of the Mexican peso.“store within a store” format and online at Claroshop.com.

(b) Financial Information about Industry Segments.

In fiscal 2015,2018, the Company conducted business as one operating segment consisting of the retail sales of decorative home furnishings, furniture, giftsaccessories and related items.furniture.

Financial information with respect to the Company’sCompany's business is found in the Company’sCompany'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-Commercee‑Commerce website conducting business under the name Pier 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 February 28, 2015,March 3, 2018, the Company operated 984928 stores in the United States 81and 75 stores in Canada and an e-Commerce website.in addition to its e‑Commerce website, pier1.com. The Company also supplied merchandise and licensed the Pier 1 Imports name to Grupo Sanborns, which sold Pier 1 Imports’ merchandise primarily in a “store within a store” format in 68 stores in Mexico and one store in El Salvador. Pier 1 Imports’Company’s stores in the United States and Canada average approximately 9,90010,000 gross square feet, which includes an average of approximately 7,9008,000 square feet of retail selling space. The stores are located in freestanding units near shopping centers or malls and in-line positions in major shopping centers. Pier 1 ImportsThe Company operates in all major U.S. and Canadian metropolitan areas and many of the primary smaller markets. The Company generally has its highest sales volumes during November and December as a result of the holiday selling season. In fiscal 2015,2018, net sales of the Company totaled $1.9$1.8 billion.

Pier 1 ImportsThe Company offers a unique selection of merchandise items imported from many countries around the world. While the broad categories of Pier 1 Imports’the Company’s merchandise remain fairly constant, individual items within these merchandise categories change frequently in order to meet the changing demands and preferences of 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’the Company’s sales mix and has remained constant at approximately 65% of Pier 1 Imports’ sales in fiscal years 2015, 20142018, 2017 and

4    PIER 1 IMPORTS, INC.ï  2015 Form 10-K

2013. 2016. These goods are imported primarily from Asian and European countries, and are also obtained from domestic sources. This merchandise group includesinclude decorative accents and textiles such as rugs, wall decorations and mirrors, pillows, bedding, lamps, vases, dried and artificial flowers, baskets, ceramics, dinnerware, candles, fragrance, gifts and seasonal items.

FURNITUREFURNITURE — This merchandise group consists of furniture and furniture cushions to be used in living, dining, office, kitchen and bedroom areas, sunrooms and patios. This group has remained constant at approximately 35% of Pier 1 Imports’ sales in fiscal years 2015, 20142018, 2017 and 2013. These goods are imported from a variety of countries such as Vietnam, Malaysia, China, the Philippines, India and Indonesia, and are also obtained from domestic sources. This merchandise group2016. The Company’s furniture is generally made of metal or handcrafted natural materials, including rattan, pine, acacia, oak, and other woods with either natural, stained, painted or upholstered finishes.

Pier 1 Imports’4

The Company’s merchandise largely consists of items that feature a significant degree of handcraftsmanship and are mostly imported directly from foreign suppliers. Pier 1 Importshandcraftsmanship. The Company enjoys long-standing relationships with many vendors and agents and is not dependent on any particular merchandise supplier. The Company believes alternative sources of merchandise could be procured over a reasonable period of time, if necessary. In selectingWhen sourcing merchandise, the source of merchandise, Pier 1 ImportsCompany considers quality, dependability of delivery and cost. During fiscal 2015, Pier 1 Imports2018, theCompany sold merchandiseimported from many different countries, with approximately 59% of its sales derived from merchandise produced in China, 14%17% in India and 18%16% collectively in Vietnam, Indonesia and the United States. The remainder of its merchandise is sourced from other countries around the world.

Imported and domesticMost merchandise is deliveredshipped from the supplier to the Company’s distribution centers, where merchandise is received,then allocated and shippeddelivered to the variousretail stores, in each distribution center’s region, fulfillment centers or delivered directly to customers.third party carriers fulfilling customer orders.  

The Company owns a number of federally registered trademarks and service marks under which Pier 1 Importsit 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, home furnishings retailers, small specialty stores, e-commerceonline 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.purchase. 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 February 28, 2015,March 3, 2018, the Company employed approximately 24,00018,500 associates in the United States and Canada, of which approximately 5,0004,500 were full-time employees and 19,00014,000 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.Statements.

(e) Available Information.

The Company makes available, free of charge through its Internet website address (www.pier1.com)(www.pier1.com), its Annual 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 United States Securities and Exchange Commission (“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.

Executive Officers of the Company

ALEXANDER W. SMITH,ALASDAIR B. JAMES, age 62, joined the Company as47, became President and Chief Executive Officer in February 2007.and joined the Board of Directors on May 1, 2017.  Prior to joining the Company, Mr. SmithJames was employed by Sears Holdings Corporation as President of Kmart from August 2014 to March 2017. Prior to joining Sears Holdings, he served in various roles at Tesco PLC, a multinational grocery and general merchandise retailer, from June 2007 until August 2013, including Commercial Director – Global Business Unit. From June 2001 to June 2007, he served in various roles at GlaxoSmithKline PLC, a pharmaceutical company, including Global Marketing Director for Future Brands.

NANCY A. WALSH, age 57, joined the organization in January 2018 as Executive Vice President and Chief Financial Officer. Prior to joining the Company and since November 2015, Ms. Walsh served as GroupExecutive Vice President of the TJX Companies,– Chief Financial Officer for The Bon-Ton Stores, Inc. Previously, she served as Senior Vice President, Finance for Tapestry, Inc., where he oversaw the operationsformerly known as Coach, Inc., from 2007 to 2013. Prior positions at Coach included serving as Chief Risk Officer from 2003 to 2007, Vice President, Finance and developmentTreasurer from 2000 to 2003, and Chief Financial Officer 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.

PIER 1 IMPORTS, INC.ï  2015 Form 10-K5

Worldwide Wholesale Division from 1999 to 2000.

MICHAEL R. BENKEL, age 46,49, 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.

LAURAMICHAEL A. COFFEY,CARTER, age 48,59, was named Executive Vice President, of the CompanyCompliance and began serving as Interim Chief Financial Officer in February 2015. Ms. Coffey has served within the organization for 18 years in various capacities, including 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 officerGeneral Counsel, Secretary of the Company in 2005 andApril 2016, having previously served as Principal Accounting Officer from 2008 to 2011. Prior to joining the Company, she held various positions with Alcon Laboratories and KPMG, LLP.

CATHERINE DAVID, age 51, 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 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 63, 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 41, 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.

SHARON M. LEITE, age 52, 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.

MICHAEL A. CARTER, age 56, 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 2528 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.

ANDREW LAUDATO,LAURA A. COFFEY, age 48,51, was named Executive Vice President of Business Development in April 2018. Ms. Coffey has served within the organization for 20 years in various capacities, including Executive Vice President of Planning and Allocations, 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 served as

5

Principal Accounting Officer from 2008 to 2011. Prior to joining the Company, she held various positions with Alcon Laboratories and KPMG, LLP.

WILLIAM H. SAVAGE, age 54, was named Executive Vice President – Global Sourcing of the Company in December 2017.  Prior to joining the Company, Mr. Savage served as the President Home Division for Sears Holdings Corporation from 2014 to 2017. From 2012 to 2014, Mr. Savage served as Executive Commercial Director for Tesco PLC in China and prior to that as Executive Vice President and Chief Merchandising Officer, Retail for Walmart, Inc. in India from 2010 to 2012. Earlier in his career, he held senior leadership positions with Metro Cash & Carry International in Vietnam and Kingfisher PLC in China, Korea and the U.K.  

BHARGAV J. SHAH, age 42, was named Senior Vice President and Chief Information Officer in April 2002. He joinedof the organizationCompany in August 2000 as Vice President of Information Services.2017.  Prior to joining the Company, Mr. Shah served as Chief Information Officer at IntegraCore LLC from 2015 to 2017 where he was responsible for information technology, e‑Commerce and digital marketing. Mr. Shah also previously held the position of Senior Vice President, Technology at Overstock.com, Inc. from 2012 to 2015. Earlier in his career, he held variousinformation technology positions of increasing responsibility with the Limited,at KPMG, LLP, BearingPoint, Inc., Bath and Ernst & Body Works, LLC, Express, Inc., and Jo-Ann Stores, LLC.Young, LLP.

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.person.

Item 1A. Risk Factors.

The Company’s business is subject to risk.risk and uncertainties. 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 thatof which 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 and uncertainties that may be faced by the Company. The occurrence of the described risks and uncertainties 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.

6    PIER 1 IMPORTS, INC.ï  2015 Form 10-K

Strategic Risks and Strategy Execution Risks

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

The success of the Company’s specialty retail business depends largely upon its ability to consistently predict trends 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 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. Whileresults will be negatively impacted. The Company announced its Pier 1 2021: A New Day three-year strategic plan in April 2018, which is focused on improving brand proposition, driving sales growth and capturing operating efficiencies. If the Company believes these disruptionsplan is not successfully executed, or if execution takes longer than expected, there is no assurance that the Company’s business, financial condition and results of operations would not be short-term, their adverse impact could be material.adversely affected.

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, cybersecurity threats and increased costs.

The Company outsources numerous business processes to third parties includingincluding: gift card tracking and authorization,authorization; credit card authorization and processing,processing; store schedule visibility and time/attendance tracking,tracking; store maintenance services,services; maintenance and support of the Company’s website and e-Commerce platform,e‑Commerce platform; certain marketing services,services; insurance claims processing,processing; real estate services; customs filings and reporting,reporting; domestic and ocean freight including certain processing functions,functions; integration, shipment and delivery of customer orders including parcel, in-home delivery and drop ship; certain merchandise compliance functions including testing,testing; certain payroll processing and various tax filings, administration and record keeping for certain employment benefits including retirement and deferred compensation plans, and the stock purchase plan and third partymedical and prescription plans; 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 arefacilities, and appropriate policies and practices to mitigate the risk of security breaches, cyber incidents and e‑Commerce related fraud that could damage the Company, its customers or other third parties with whom it does business. Failures affecting the Company’s vendors have occurred in the past, without any material adverse impact upon the Company, and could occur in the future. There can be no guaranteesassurance that failures will not occur.occur or that their effects on the Company would not be material. 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 material negative effect on the Company’s operations and financial results.

7

An overall decline in the health of the economy in the United States or 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 consumers. The resulting deterioration in consumer confidence and spending during those recessionary periods resulted in consumers reducing 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.

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

The Company maintains regional distribution centers in Maryland, Ohio, Texas, California, Georgia and Washington, where merchandise is received, allocated, and delivered to the Company’s stores, fulfillment centers and customers. The Company may from time to time relocate or consolidate facilities, which could delay delivery of merchandise to the Company’s stores and customers. Major catastrophic events such as natural disasters, fire or flooding, malfunction or disruption of the information systems, security breaches, cyber incidents, a disruption in communication services or power outages, or shipping interruptions (including labor issues at the ports) could also delay distribution of merchandise to the Company’s stores and customers. Such disruptions could have a negative impact on the Company’s sales, operations and financial results.

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

The success and growth of the Company is dependent upon 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 and maintain customer information, determine the customer’s merchandise and purchasing interests, and to personalize communication to customers through their desired mode of communication utilizing various channels. Media placement decisions are generally made months in advance of the scheduled release date and are subject to the competitive landscape of advertisement placement. While gathering information about customers, the Company must consider the customers’ interest in participating in loyalty programs, the customer’s desire for privacy and the need to comply with applicable laws and regulations regarding advertising and privacy. Any future changes in privacy laws or their interpretation or enforcement by courts and governmental agencies could adversely impact the Company’s ability to market to customers. The Company’s inability to obtain and use both new and existing customer information, accurately predict and respect its customers’ preferences, utilize the desired modes of communication, allocate marketing resources to maximize return, maintain effectiveness of its loyalty program or ensure availability of advertised products could negatively impact the business and 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

PIER 1 IMPORTS, INC.ï  2015 Form 10-K7

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-Commercee‑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, or the e-Commerce website, could impact the 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.

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 depends on generating customer 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 under-performingunderperforming 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 an asset exceeds the sum 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

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 depends 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 athe 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. ManagementThe Company actively monitors individual store performance and attempts to negotiate favorable lease expensesterms to ensure stores can remain profitable or have the ability to reboundreturn 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 underperforming stores before lease expiration and incur lease termination costs associated with those closings. OnIn April 8,of 2015, the Company announced that it had initiated a real estate optimization 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 reductionreductions and

8    PIER 1 IMPORTS, INC.ï  2015 Form 10-K

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.improved financial results.  

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 home retail business and competes primarily 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, product value proposition given pricing and quality, newness of merchandise assortment, visual presentation of its merchandise, including store layout, degree of convenience and customer service. The Company experiences increased competition when other retailers offer promotional pricing, including free shipping, or liquidate merchandise for various reasons. The Company has experienced the adverse effects of increasing competition in recent years. If the Company is unable to maintain a competitive position, it could experience increased negative pressure on retail prices for its products and loss of customers, which in turn, would have a material adverse effect on its business, financial condition and results of operations.

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 a governmental shut down)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 negativelya negative impact to 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 and fulfillment centers and e-Commercee‑Commerce website could negatively affect the Company’s business.

The Company’s success 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,corporate headquarters, stores, and distribution and fulfillment centers, which could have a negative effect on the business.Company’s business and the Pier 1 2021: A New Day strategic plan. 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 taking by itsor associates, whose behavior would be most affected by performance-based incentives. The Company believes that the focus of its overall compensation program encourages its associates to take a balanced approach that focuses on increasing and sustaining Pier 1 Imports’the Company’s profitability.

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 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 margins.  Similar activities could also occur in the Company’s stores and fulfillment centers.

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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 20152018, the Company continued to implementenhance its omni-channel strategy, ‘1 Pier 1’.capabilities. 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 orders, accurate shipping of undamaged product and coordination 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. As e‑Commerce sales continue to grow, delivery and fulfillment net costs are expected to continue to increase. Failure to successfully manage these processes and costs may negatively impact sales and profitability, 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 department stores, home furnishing retailers, small specialty stores, e-commerce retailers 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 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 margins and operating results.

PIER 1 IMPORTS, INC.ï  2015 Form 10-K9

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.

The Company generally has its highest sales volumes during the November and December holiday selling season. Severe weather or failure to predict consumer demand correctly during these months could result in material 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.

IncreasesThe Company’s financial results may be negatively impacted by 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, recalls, 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, higher tax rates and complyingunfavorable changes in tax and trade policies. In addition, compliance with changes in laws and regulations includingand 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 Pier 1’ 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, or security breaches or cyber incidents associated with, any critical software applications maintained by the Company or its vendors, including software-as-a-service and “cloud”cloud operations, technology infrastructure, telecommunications, data communications, data storage equipment, or networks could have a material negative effect, including additional expense, on the Company’s ability to manage the merchandise supply chain, allocate and sell merchandise, manage its relationships with its customers, 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. External events, including but not limited to, natural disasters, fire or flooding, civil unrest, service disruptions or degradation because of technology malfunction, sudden increases in customer transaction volume, power or internet outages, telecommunications failures, fraud, denial-of-service and other cyberattacks, terrorism, computer viruses, physical or electronic break-ins or other events not within the Company’s control could prohibit access to or limit functionality of the data center located in the Company’s headquarters or the ability of its stores to function. While the Company has successfully mitigated past events of this nature with minimal disruption to the business, a major event could be more disruptive and require significant time and resources to resolve, and could result in a material adverse impact on the Company’s operations and financial results.

Failure to protect the integrity and security of individually identifiable data of the Company’s customers and associates 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 associates. The collection and use of this information by the Company is regulated at the international, national, federal, state and other political subdivision levels, and is subject to certain contractual restrictions in third partythird-party agreements. The Company utilizes numerous tools and processes intended to protect against, detect and respond to security breaches and cyber incidents that could compromise this information, including an integrated risk assessment and disclosure process. The Company utilizes an incident response plan as part of

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its crisis management program, which is reviewed, enhanced and tested annually. This response plan includes notification and disclosure to appropriate levels of management, the Company’s Board of Directors and other stakeholders including affected customers and governmental authorities. Although the Company has 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.

Like all large scale retailers, the Company’s information systems and those of its vendors are under continuous attack by U.S. and foreign criminal elements seeking access to the Company’s data generally and particularly information regarding its customers and employees or to otherwise disrupt its operations. These increasingly sophisticated cyberattacks include computer viruses, malicious code, ransomware, social engineering attacks (including phishing and impersonation), hacking, denial-of-service attacks and similar disruptions. While the Company has not to its knowledge experienced a material breach or loss of sensitive information, there can be no assurance that such breaches or losses will not occur or that their cost or impact to the Company will not be material. 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 thesethe Company’s security breach and cyber incident policies and procedures or applicable laws and regulations and thiscustomer or employee 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, andcould be materially impacted.  These events could result in litigation and/or regulatory action against the Company, including the imposition of monetary judgments, penalties and fines.fines in amounts that would be material to the Company. In addition, a compromise of the Company’s systems could result in a disruption to operations and strategic initiatives and require expandedmaterially greater resources to remediate, investigate, correct and upgrade systems. As the tactics and capabilities of cyber criminals change and become more sophisticated, and as privacy and information security laws and regulations change, the Company will continue to incur additionalsignificant costs to remain reasonably secure and in compliance.

Failure to successfully implement new information technology systems and enhance existing systems could negatively impact the businessCompany’s operations and its financial results.

The Company regularly invests in new information technology systems and implements 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,

10    PIER 1 IMPORTS, INC.ï  2015 Form 10-K

solutions platform-as-a service  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 including security breach and cyber incident risks. Failure to successfully implement these initiatives could negatively impact the businessCompany’s operations and its financial results.

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

The Company’s e-Commercee‑Commerce functionality has increased the Company’s exposure to cybersecurity risks.security breach and cyber incident risks and e‑Commerce related fraud. A compromise of the Company’s or its securitythird-party vendors’ information systems could result in a service disruption, or customers’, associates’ or vendors’ personal information orof the Company’s customers or proprietary information of the Company or its vendors being obtained by unauthorized users.users or the Company, its customers or its vendors falling victim to unauthorized, fraudulent transactions. A failure to exercise adequate oversight over third-party vendors, including compliance with service level agreements or regulatory or legal requirements, could result in economic and reputational harm to the Company. Although the Company has implemented processes to mitigate the risks of security breaches, and cyber incidents and e‑Commerce related fraud, and believes that it has responded appropriately and effectively to prevent any material adverse effect on the Company or its customers when these events have occurred, there can be no assurance that such an attackevents will not occur. Any breach ofcontinue to occur, that such mitigation will be successful or that the Company’s securityCompany or its customers will not in a future instance suffer material losses. These events could result in violation of privacy laws, potential litigation or regulatory action, increased costs and a loss of consumer confidence in itsthe Company’s security measures, allmeasures. While the Company has successfully mitigated past events of whichthis nature with minimal disruption to the business, a major event could havebe more disruptive and require significant time and resources to resolve, and could result in a negativematerial adverse impact on the Company’s operations and financial results and its reputation.results.

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

Maintaining a good reputation is critical to the Company’s business. The considerable expansion in the use of socialSocial 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 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 reputation, operations and financial resultsresults.

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Legal 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 tomay 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 its numerous locations, large number of associates, contact with consumers and importation and exportation of product.  In addition, the Company is subject to a broad range of business regulations regardingincluding consumer product quality and safety standards. Complying with regulations may cause the Company to incur significant expenses, including the costs associated with periodic audits. Failureaudits and recalls. Any failure or alleged 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 or business interruptions.

The Company operatesconducts business in many taxing jurisdictions, including foreign countries. In mostmany of these jurisdictions, the Company ismay be required to comply with employment laws and pay or collect tariffs and duties, national, state and local sales taxes or similar taxes at the point of sale or delivery of merchandise and remit such taxesamounts 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, duties and tariffs, and with licensing requirements could also subject the Company to financial penalties and fines or business interruptions.

The Company is subject to claims and litigation that are inherently unpredictable and could have a material adverse effect on the Company’s business, financial condition and results.

The Company is subject to claims, lawsuits, inquiries, investigations and pending legal and administrative actions incident to the operations of its business. These actions can be initiated by employees, customers, vendors, competitors, holders of claimed intellectual property rights, shareholders, government agencies and others, individually or by groups through mass and class actions. While the Company generally considers these matters to be ordinary and routine in nature, budgets for their cost and maintains insurance or reserves against a portion of the costs of certain of these exposures, there can be no assurance that the Company will not incur material unexpected costs, judgments or penalties, or material demands on management’s time, attributable to these matters. The likely outcome and cost of litigation and other disputes is often difficult or impossible to determine or quantify. Claims may seek very large or unspecified amounts. The full extent of the Company’s risk of loss relating to these matters may remain unknown for substantial periods of time as a decision at one level of the courts or administrative proceedings can be overturned by appeals to higher courts or other decisional bodies. The Company expends significant amounts for insurance, personnel costs and external advisors in an effort to limit exposures to these sources of claims and litigation, which costs are increasing. There is no assurance that these efforts will prove effective. Claims ultimately decided adversely to the Company, or settlements that the Company agrees to, may be very large and could have a material adverse effect on the Company’s business, financial condition and results.

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

PIER 1 IMPORTS, INC.ï  2015 Form 10-K11

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 generalgeneralized system of preferences, retaliatory tariffs or commercially restrictive duties, 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 operations and financial results of the Company. Ocean carriage and freight costs, duties and agent commissions contribute a substantial amount to the cost of imported merchandise. Monitoring foreign vendors’ compliance with applicable laws and Company standards, including quality and safety standards and social compliance issues, is more difficult than monitoring 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

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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, safeguard 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 countrythird-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 or other retaliatory actions 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 providers in other countries on terms that could be materially less favorable.

The Company’s business may be adversely affected by changes in U.S. policy related to imported merchandise.

The majority of the Company’s merchandise is sourced from outside of the United States. The U.S. government has made substantial changes to its trade policies, including import restrictions and increased import tariffs on certain classes of products, among other measures reported to be under consideration. While these actions and proposed actions have not materially affected the Company’s sourcing of merchandise to date, there is no assurance that trade actions by the U.S. government or foreign governments will not have a material adverse effect on the Company. Material changes in these policies could require the Company to increase prices to customers, which would likely adversely affect sales. Any significant change in U.S. policy related to imported merchandise could have a material adverse effect on the Company’s business and financial results.    

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 and strategic investments. The Company maintains a secured revolving credit facility to enable it to issueacquire merchandise, and special purpose standby letters of creditfund working capital requirements as well as to fund working capital requirements.support standby letters of credit. 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 and term loan facility. The Company entered into the Term Loan Facility ona senior secured term loan facility in April 30,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 Term Loan Facility. Those borrowings have increased the Company’s interest expense and financial leverage. The Term Loan Facility contains a number of affirmative and restrictive covenants that may also limit the Company’s

12    PIER 1 IMPORTS, INC.ï  2015 Form 10-K

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.credit and greater dependence on the availability of the revolving credit facility. These actions could result in the Company being subject to increased restrictions as described above and increase interest expense and overall leverage. See Note 4 of the Notes to Consolidated Financial Statements – Secured Revolving Credit Facility and Term Loan Facility for additional discussion.  

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 thatwith whom 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

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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.

Risks Relating to the Company’s Common Stock

Many factors, including factors beyond the Company’s control, could affect the Company’s common stock price.

The Company’s common stock is subject to significant volatility as a result of many factors, including those beyond the Company’s control. These factors include, but are not limited to, general economic and market conditions, fluctuations in the Company’s financial condition, operating results or liquidity, execution of the Company’s strategic plan, discontinuation of common stock dividends and share repurchases, or failure to meet shareholder expectations. These and other risks could affect the Company’s common stock price.  

The Company’s business or the value of its common stock could be negatively affected as a result of actions by activist shareholders.

The Company values constructive input from investors and regularly engages in dialogue with its shareholders regarding strategy and performance. The Company’s Board of Directors and management team are committed to acting in the best interests of all of the Company’s shareholders. There is no assurance that the actions taken by the Board of Directors and management in seeking to maintain constructive engagement with the Company’s shareholders will be successful.

Activist shareholders who disagree with the composition of the Board of Directors, the Company’s strategy or the way the Company is managed may seek to effect change through various strategies that range from private engagement to publicity campaigns, proxy contests, efforts to force transactions not supported by the Board of Directors and litigation. Responding to some of these actions can be costly and time consuming, may disrupt the Company’s operations and divert the attention of the Board of Directors, management and the Company’s employees. Such activities could interfere with the Company’s ability to execute its strategic plan and to attract and retain qualified executive leadership. The perceived uncertainty as to the Company’s future direction resulting from activist strategies could also affect the market price and volatility of the Company’s common stock.

Item 1B. Unresolved Staff Comments.

None.

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PIER 1 IMPORTS, INC.ï  2015 Form 10-K13

Item 2. Properties.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 363,000408,000 square feet of office space as of February 28, 2015.March 3, 2018. Approximately 43,000 square feet of this office space was subleased at fiscal 2018 year end. Total gross square footage for all stores was 10.0 million and retail square footage was 7.9 million as of March 3, 2018. The following table sets forth the Company’s U.S. and Canadian stores by state and province as of February 28, 2015:March 3, 2018:  

The Company currently owns or leases distribution and fulfillment center space of approximately 4.95.6 million square feet.  The Company also acquires temporary distribution center space from time to timeperiodically through short-term leases.  As of February 28, 2015,March 3, 2018, the Company owned or leased under operating leases the following properties, which include distribution and/or fulfillment centers in or near the following cities:

Item 3. Legal Proceedings.

Putative class action complaints were filed in the United States District Court for the Northern District of Texas – Dallas Division against Pier 1 Imports, Inc., Alexander W. Smith and Charles H. Turner in August and October 2015 alleging violations under the Securities Exchange Act of 1934, as amended. The lawsuits, which 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, were filed on behalf of a purported putative class of investors who purchased or otherwise acquired stock of Pier 1 Imports, Inc. between April 10, 2014 and December 17, 2015. The plaintiffs seek 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. On August 10, 2017, the court granted the Company’s motion to dismiss the complaint, while providing the plaintiffs an opportunity to replead their complaint. An amended complaint was filed with the court on September 25, 2017. On November 22, 2017, the Company filed a motion to dismiss the amended complaint.  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.

The Company announced in January 2016 a voluntary recall of its Swingasan Chair and Stand in cooperation with the Consumer Product Safety Commission (“CPSC”). In September 2016, the Company received a staff investigatory letter from the CPSC indicating that the CPSC would investigate whether the Company complied with certain reporting requirements of the Consumer Product Safety Act with respect to the recall. The Company responded to the inquiry and cooperated with the CPSC.  On September 20, 2017, the

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Company received a letter from the CPSC proposing to resolve certain alleged violations of the Consumer Product Safety Act relating to the Swingasan recall on terms which would require, among other things, the payment of a civil money penalty. On October 27, 2017, the Company submitted its response to the CPSC letter. The Company disagrees with a number of the allegations and legal conclusions asserted by the CPSC and believes the requested civil money penalty is excessive in view of the circumstances. Given the nature of this matter and the uncertainty as to how and when it will be resolved, the Company believes that a reasonable estimate of the potential range of loss in connection with this matter is $2.0 million to $6.2 million. While we anticipate that the final settlement will fall within the estimated range of outcomes, the final terms of the resolution of this matter cannot be predicted with certainty and no assurances can be given as to the specific amount that the Company may be required to pay.

The Company is a defendant in lawsuits pending in federal courts in California containing various class action allegations under California state wage-and-hour laws. These lawsuits seek unspecified monetary damages, injunctive relief and attorneys’ fees.  The Company has sought to settle these cases on terms favorable to the Company in view of the claims made, the continuing cost of litigation and an assessment of the risk of an adverse trial court or appellate decision. The Company has settled or agreed to settle the pending cases, subject to completion of associated procedural requirements. The Company does not believe any reasonably foreseeable resolution of these matters will have a material adverse effect on the Company’s financial condition, results of operations or liquidity.

The Company recognized expense of $6.6 million in the second quarter of fiscal 2018 attributable to the legal and regulatory proceedings described in the two preceding paragraphs as a component of selling, general and administrative expenses.

During fiscal years 2015, 20142018, 2017 and 2013,2016, there were various other claims, lawsuits, inquiries, investigations and pending actions against the Company and its subsidiaries incident to the operationsoperation of its business. The Company considers these other matters to be ordinary and routine in nature. The Company maintains insurance against the consolidated class action described in the first paragraph in this Item and liability insurance against most of these matters.the other matters noted in this paragraph. It is the opinion of management, after consultation with counsel, that the ultimate resolution of such matters will not have a material adverse effect, either individually or in the aggregate, on the Company’s consolidated financial position,condition, results of operations or liquidity.

Item 4. Mine Safety Disclosures.

Not applicable.

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PIER 1 IMPORTS, INC.ï  2015 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 (“NYSE”), as reported in the consolidated transaction reporting system for each quarter of fiscal 20152018 and 2014.2017.  

Number of Holders of Record

The Company’s common stock is traded on the NYSE under the symbol “PIR.” As of April 27, 2015,2018, there were approximately 7,0006,000 shareholders of record of the Company’sCompany's common stock.

Dividends

The Company declared cash dividends on its outstanding shares of $0.06common stock of $0.07 per share in each of the quarters of fiscal 2015,2018, which totaled $21.6$22.3 million in cash dividends paid during fiscal 2015.2018. 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 2014,2017, which totaled $21.7$22.5 million in cash dividends paid during fiscal 2014.2017. On April 8, 2015,18, 2018, subsequent to year end, the Company announced a $0.07 per share quarterly cash dividend onthat the Company’s outstanding shares of common stock. The $0.07 per share quarterly cash dividend will be paid on May 6, 2015, to shareholders of record on April 22, 2015. The Company’s decision to pay a cash dividend 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 February 28, 2015, the Company was not precluded from paying cash dividends or repurchasingDirectors had determined to discontinue the Company’s common stock under the secured revolving credit facility (“Revolving Credit Facility”) or the senior secured term loan facility (“Term Loan Facility”). The Company’s Revolving Credit Facility may limit certain investmentsdividend to allocate greater resources towards implementing its Pier 1 2021: A New Day three-year strategic plan to drive sales and in some instances, limit payment of cash dividendsearnings growth 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 $350.0 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 30.0% of the lesser of either $350.0 million or the calculated borrowing base. Additionally, 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 orincrease shareholder value. 

16    PIER 1 IMPORTS, INC.ï  2015 Form 10-K

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 additional discussion regarding the Company’s secured Revolving Credit Facility and Term Loan Facility.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

November 30, 201426, 2017 through February 28, 2015 March 3, 2018 — The following table provides information with respect to purchases of common stock of the Company made during the three months ended February 28, 2015,March 3, 2018, by Pier 1 Imports, Inc.the Company or any “affiliated purchaser” of Pier 1 Imports, Inc.,purchaser,” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934.