Cost Plus Loses More but Beats Plan

Oakland, Calif. — Specialty retailer Cost Plus World Market pleased analysts by coming in ahead of guidance for the third quarter — even though gross margins fell 220 basis points to 28.1% of sales and its quarterly losses widened. Shares of the retailer gained on the news, rising within the next several days to a price as high as $6.22, better than the stock has done since August.

Cost Plus, which operates 297 units in 34 states, reported a quarterly net loss of $13.9 million, deeper than the $12.2 million loss for the year-ago period. Quarterly sales were up 2.4% to $220.6 million; comps fell 4.3%.

President and ceo Barry Feld said during the earnings call that a “favorable sales mix” of home furnishings within the home and consumables categories, combined with lower markdowns, aided the company's efforts to re-establish its “everyday-value” pricing strategy.

Another plus during the period was “strong customer response” to both the dining and living furniture events and the rug caravan, “despite an increasingly challenging economic environment,” Feld added.

The pricing for these events was a combination of the company's everyday-value pricing and its traditional promotional pricing activity.

Cost Plus continues its turnaround initiatives, employing four principles throughout the holiday season:

• Reclaiming opening price points across all businesses;
• Establishing a “continuous flow of newness in all businesses to establish ourselves as a destination worthy of repeated visits,” Feld said;
• Increasing the number of “key, high-value, high-velocity items” on store shelves;
• Enhancing the look and feel of Cost Plus stores to better reflect “our unique and high quality merchandise,” he concluded.

While the retailer has lost $1.95 per diluted share through the first three quarters, Cost Plus, confident of its turnaround and fourth quarter plans, now projects a full year net loss of $1.45 to $1.58 per diluted share.