Cost Plus: Misses by a Wide Margin

Cost Plus Inc. (CPWM) is a leading specialty retailer of home furnishings. Fourth-quarter sales were slightly above our forecast, but the company's EPS missed our estimate by a wide margin. Cost Plus reported a net loss of $0.19 per share vs. our estimate of a net profit of $0.18 per share.

The shortfall was due to lower merchandise margins and higher operating costs than we estimated. What's more, management's guidance for the first quarter was not bullish. Macro economic headwinds are pressuring the company's results, and management does not anticipate an economy recovery for at least a year. We agree and would avoid Cost Plus shares.

The combination of the company's mounting losses and weak balance sheet point to further weakness in its stock price. We reiterate our Sell rating and our 6-month target price of $0.50.

Comments

[TX Cowgirl:]

I have shopped at Cost Plus World Market for over 15 years. I am very disappointed to say that the wine department has been on a downward slope for some time now. They used to purchase quality, unique finds that were an excellent value for the price. I was not afraid to try these eclectic wines, trusting that they would be a great wine, offered at a great value. Sadly, in the last year or two, it would appear that Cost Plus has changed it's wine strategy to buying poor quality, buy-out wine that no one else wanted. They are then marking these wines up 50% and trying to pass off swill as quality wine.
I have taken my wine purchases to other retailers that have the integrity to offer quality wine.

May 27 08:06 PM