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Cost Plus sales up, operating loss narrower

Cost Plus sales up, operating loss narrower

Oakland, Calif. – After spending much of last year lowering price points to drive more traffic and transactions, specialty retailer Cost Plus Inc. is now gearing up to raise prices on some of its products, including consumables, over the second half of this year.

Barry Feld, president and ceo, during the 296-unit chain’s second quarter call Thursday afternoon declined to offer specifics in terms of product categories or price increase levels. He did say that higher tickets will be tacked onto products “where appropriate” and to be sure “across every item in our merchandise mix where we believe we can raise prices and still offer strong value statements.”

“Up to this point,” he stressed, “the company has held the line on retail prices and not passed on higher commodity costs in order to ensure we maintain the pricing credibility we fought so hard to re-establish.” In light of supply chain costs “that are beyond our control,” Cost Plus has already begun to “tactically increase prices on certain items to relieve the near-term pressure on buyer margin without compromising the momentum we are achieving at the top line,” Feld said.

Cost Plus recorded a second quarter net loss of $26.6 million, up from $18.0 million in the same period one year ago – but last year’s result included an $11 million income tax benefit. The company reported a $22.1 million loss from continuing operations before interest and taxes – including $2.8 million of expense of warding off the unsolicited acquisition proposal by Pier 1 Imports – compared to a $25.3 million loss in the second quarter of 2007.

Quarterly sales of $221.0 million were up 5.6% from $209.2 million last year; comps climbed 1.2%. Six-month sales rose 5.1% to $432.6 million as comps edged up 0.9%.

Cost Plus will hold its store count steady in 2009, cutting earlier expansion plans; the company is also applying other cost-trimming efforts.

Company execs spent considerable time noting that the $2.8 million spent responding to the short-lived buyout attempt by Pier 1 undermined quarterly savings from such measures as an advertising timing switch, and also eroded improvements in the SG&A expense ratio.

On the topic of the home category, textiles was a strong point during Cost Plus’ outdoor entertaining season: “It was driven by strong performance in outdoor furniture, textiles and consumables,” Feld said. This successful event helped the home-to-consumables mix tick up to 67% and 33% respectively, vs. 66% and 34% in the same period last year.

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