Cost Plus suffers harsher net loss but churns sales and comp gains in 2Q

Oakland, Calif. - The home business segment delivered same-store sales increases during the second quarter at Cost Plus Inc. regardless of shoppers' cautious approach to discretionary purchases.

In fact, the home textiles category was singled out as among the more resilient such areas for the retailer during Cost Plus' earnings call Thursday afternoon.

"What we have seen is not so much a slowdown in customers coming in or frequency of visit, it's really, as I've already expressed. We have actually seen a more conservative buying approach to the higher-ticket product categories," said Barry Feld, ceo. "And we started to see that at the higher end of our outdoor [category] towards the latter part of the season. We expect to experience some of that in the living and dining [categories]. But outside of high price points, and even though those categories are value price points, we see far less pressure on consumer behavior as it relates to the day-in and day-out product categories, whether it's the food or the wine side of the business or tabletop textiles or ceramics or personal care products."

Feld noted the period was Cost Plus' sixth consecutive quarter of positive comps and seventh consecutive quarter of increases in customer counts.

But even so, the second quarter for Cost Plus had its share of challenges.

Net loss increased by 14% to $8 million or $0.36 per diluted share versus a net loss of $7 million or 32 cents per diluted share in the year-ago period. Better off was the year-to-date net loss, which improved by 35% to $11.4 million or 52 cents per diluted share versus $17.3 million or $0.78 cents per diluted share in 2010's first six months.

Net sales for the second quarter grew 3.2% to $197.9 million compared to $191.8 million, and comparable store sales increased 2.8%, driven by a 5.5% gain in customer count that was partially offset by a 2.5% decrease in the average ticket.

The mix between consumables and home as a percentage of net sales was 65% and 35%, respectively, for the second quarter of 2011 versus 66% and 34%, respectively, for the second quarter of 2010.

Year-to-date net sales were up 4.5% to $397.7 million compared to $380.4 million for the same period last year, and same store sales increased 4.2%.

Feld said the upcoming holiday season is shaping up to be a strong one for Cost Plus, which has already started rolling out fall merchandise.

"As you visit our stores during the second half of the year, you'll see that our fall harvest, Halloween and holiday assortment and visual merchandising have never looked better and are priced to deliver clear and recognizable value to our customers," he said. "Our continual flow of fresh merchandise with exclusive designs will provide our customers with creative and affordable solutions for their gift-giving and home entertaining needs, which is particularly important in today's consumer climate."

But caution is top of mind, Feld continued.

"As we're all aware, the recent events surrounding the national debt debate combined with the global debt crisis and stock market volatility are weighing on the consumers' psyche. We believe we have entered a more difficult consumer phase which may be with us for the foreseeable future," he said. "We continue to remain cautiously optimistic about our fall and holiday seasons and have reaffirmed our bottom line full year 2011 guidance."

For the third quarter, the retailer expects a same-store sales increase of 2% to 4%; and a net loss from continuing operations in the range of $8 million to $9 million and a loss per share from continuing operations in the range of $0.36 to $0.40.

The company's full year guidance reflects a 4% to 5% increase in same-store sales and a 10 to 20 basis point improvement in gross profit rate versus fiscal 2010.

Cost Plus said it will "continue its practice of strong fiscal management and is projecting net income from continuing operations in the range of $13 million to $15 million for the full year and fully diluted earnings per share from continuing operations in the range of $0.54 to $0.63 cents. Today's bottom line guidance remains unchanged from our prior guidance."

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