Cost Plus: Textiles "Extremely" Strong in First Half
September 7, 2009,
Cost Plus Inc.'s second quarter closed with a mixed bag, falling within guidance for sales and operating results but stumbling in comp store sales with double-digit declines.
"During the quarter, the company successfully sold through its seasonal outdoor merchandise with no residual inventory remaining in our stores," said Barry Feld, president and ceo, during the company's quarterly conference call. "We drove positive comp increases in outdoor furniture, seasonal textiles, candies and drinks."
Those results, coupled with Cost Plus' solid Easter décor and consumable business, Feld continued, "bode well for the expected customer response to our Halloween/fall/ harvest and holiday assortments in the second half of next year."
He added that over the first half of 2009, the 270-unit decor chain's textiles business — which includes kitchen and table lines, floor coverings, window treatments and decorative pillows — has performed "extremely well."
"We attribute this improvement to changes made in our trend development process and a consumer trend toward decorating for less with accent pieces rather than replacing entire room settings with higher priced indoor furniture," Feld explained.
For the quarter ended Aug. 1, net loss narrowed to $20.8 million, a slight improvement of over last year's 2Q net loss of $26.6 million. Sales fell 13.0% to $183.4 million, with comps down 10.9% compared to an increase of 1.2% last year. The guidance had been set between a 9.5% and 14.5% comp decline.
Cost Plus attributed to comp slump to a 7.7% reduction to $33.57 in the average ticket per customer, primarily due to lower furniture sales of living and dining pieces as well as a 3.4% reduction in customer count.
As a percentage of total net sales in the second quarter, consumables comprised 65% and home made up 35% versus the respective 67% and 33% ratio in the same period last year.
"Consumables continue to out-perform home furnishings, particularly in cookies, candy, beverages and drink mixes," which puts pressure on margin, Feld added.
Year-to-date, sales fell 10.9% to $367.6 million, while same store sales decreased 9.9% versus a 0.9% increase for the same period last year.
For the 26-week period, net loss widened to $62.3 million from $58.6 million during the same period in 2008.
Cost Plus expects in the back half of the year that its business in higher-priced indoor furniture will remain difficult. Non-furniture fall and holiday merchandise has already arrived to the company's distribution centers and is currently being flowed into stores.
"Our merchandise is priced to deliver clear and recognizable value to our customers, and our assortments and in-store visual merchandising has never looked better," he said.
Cost Plus' third quarter outlook from continuing operations this fiscal year "anticipates continued economic volatility, weak consumer demand and pressure on the furniture business," the company said.
For the third quarter, the company is projecting a loss from continuing operations before interest and taxes in the range of $19 million to $24 million versus a loss of $21.0 million last year. Cost Plus expects sales in the range of $177 million to $186 million, based on a same-store sales decrease in the range of 6% to 11%.
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