Guggenheim analyst, Steven Forbes, reiterated his Neutral rating on shares of Pier 1 Imports (NYSE: PIR) as the 2Q merchandise margin recovery was overshadowed by weak comps. the analyst is remaining cautious on PIR’s secular prospects due to its sub-optimal real estate footprint in the face of a tepid consumer and challenging competitive environment.

The analyst thinks management's updated guidance implies a sequential improvement in comp momentum—from down 4.3% to down 1-3%—and appears conservative given 3Q to-date run-rate of low-SD positive. A return to positive comps is encouraging given its importance to overall sales growth but it may not be sustainable. As a result, the analyst is keeping estimates near the lower end of guidance partially due to expectations for a highly promotional and competitive backdrop this 4Q.

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Shares of Pier 1 Imports closed at $4.27 yesterday.