The company also said it was well-positioned for the current quarter and expected to see significant improvements in merchandise margins from a year earlier.
Green shoots are taller and the light is brighter, Chief Executive Officer Alex Smith said in a statement.
The company's level of clearance inventory is very low, and initial markups are strong, Smith added.
Sales at home-goods chains have suffered as the U.S. housing slump and recession eroded demand for furnishings and other big-ticket items.
Pier 1, whose rivals include Williams-Sonoma Inc and Bed Bath & Beyond Inc, has been eliminating jobs, closing stores and negotiating with landlords to reduce rents to cut costs. It has also managed its inventory tightly.
The company's net loss narrowed to $15.8 million, or 17 cents a share, in the second quarter ended on Aug. 29 from $30.2 million, or 34 cents a share, a year earlier.
Excluding a gain on retirement of debt, the loss was 19 cents a share, beating the analysts' average forecast of a loss of 22 cents.
Merchandise margins were 52 percent of sales in the quarter compared with 49 percent a year earlier, while inventories were $43 million lower than last year.
Pier 1 said in June that traffic at its stores was gradually improving, and sales declines in areas like Florida and the West Coast were slowing.
Sales at the Fort Worth, Texas-based company fell about 10 percent to $287 million. Sales at stores open at least a year fell 7.6 percent. (Reporting by Dhanya Skariachan in Bangalore; Editing by Lisa Von Ahn)