Cost Plus Hurt by Internal Costs

Don Hogsett, March 20, 2006

Hurt by weakening same-store sales, thinning margins, and soaring interest costs, fourth-quarter profits at Cost Plus Inc. slid by 8.3%, to $21.5 million from $23.5 million last year.

Helped by new-store openings, sales at the diversified low-price chain rose 7.0%, to $367 million from $363 million last year. But same-store sales slipped by 2.1%, weakening further from a 1.3% decline during the same period a year ago.

Taking a bite out of the bottom line, average gross margin contracted by 110 basis points, or 1.1 percentage points, to 34.0% from 35.1% the prior year. At the same time, operating costs climbed slightly higher, by 20 basis points, or two-tenths of a percentage point, to 23.6% of sales from 23.4% last year.

Putting further pressure on profits, interest expense jumped by 84.8%, to $1.3 million from $726,000 last year, costing the company $616,000 more than last year.

Even as sales climbed higher, inventories remained stable at $253 million, whittled down by one-tenth of a percentage point.

Cost Plus Inc.

Qtr. 1/28 (x000) 2005 2004 %change
Sales $366,973 $342,941 7.0
Oper. income (EBIT) 35,908 38,271 -6.2
Net income 21,513 23,456 -8.3
Per share (diluted) 0.97 1.06 -8.5
Average gross margin 34.0% 35.1%
SG&A expenses 23.6% 23.4%
12 months
Sales $970,441 $908,560 6.8
Oper. income (EBIT) 37,516 51,428 -27.1
Net income 20,233 30,221 -33.0
Per share (diluted) 0.92 1.35 -31.9
Average gross margin 33.7% 34.1%
SG&A expenses 29.0% 27.7%

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