Cost Plus Inc. (CPWM) filed Quarterly Report for the period ended 2009-08-01.
Cost Plus Inc. is a leading specialty retailer of casual home furnishings and entertaining products. The company's business strategy is todifferentiate itself by offering a large and ever-changing selection of unique products many of which are imported at competitive prices in an exciting shopping environment. Cost Plus Inc. has a market cap of $46.4 million; its shares were traded at around $2.1 .
Highlight of Business Operations:
Net Sales Net sales consists almost entirely of retail sales, but also includes direct-to-consumer sales and shipping revenue. Net sales decreased $27.3 million, or 13.0%, to $183.4 million for the second quarter of fiscal 2009 from $210.7 million for the second quarter of fiscal 2008. Year-to-date, net sales were $367.6 million, a 10.9% decrease from $412.5 million for the same period last year. Net sales for the second quarter decreased primarily due to lower comparable store sales. Comparable store sales decreased 10.9%, or $21.8 million, in the second quarter of fiscal 2009, compared to an increase of 1.2%, or $2.4 million, in the second quarter of fiscal 2008. Year-to-date, comparable store sales decreased 9.9% compared to an increase of 0.9% for the same period last year. Comparable store sales decreased during the second quarter and year-to-date primarily as the result of a reduction in the average ticket and a reduction in customer count. As of August 1, 2009, the calculation of comparable store sales included a base of 267 stores. A store is generally included as comparable at the beginning of the fourteenth month after its grand opening. At the end of the second quarter of fiscal 2009, the Company operated 269 stores in 30 states versus 278 stores (after adjusting for the 18 stores now classified as discontinued operations) in 30 states at the end of the second quarter of fiscal 2008.
Cost of Sales and Occupancy Cost of sales and occupancy, which consists of costs to acquire merchandise inventory and costs of freight and distribution, as well as certain facilities costs, decreased $18.5 million, or 12.0%, to $135.4 million in the second quarter of fiscal 2009. As a percentage of net sales, total cost of sales and occupancy increased 80 basis points to 73.8% in the second quarter of fiscal 2009 compared to 73.0 % in the second quarter of fiscal 2008. The 80 basis point increase was entirely due to decreased leverage of fixed occupancy expenses on lower comparable store sales, partially offset by a net improvement in merchandise margin of 50 basis points. The improvement in merchandise margin resulted from tighter inventory controls which led to lower shrink expense. Reductions in the cost of merchandise were offset by promotional activity required to compete with the aggressive discounting among higher end specialty retailers and discount chains. Additionally, consumables continued to outperform home furnishings which put pressure on margin rate. Year-to-date, total costs of sales and occupancy were $271.7 million and decreased $28.1 million, or 9.4%, compared to the same period in fiscal 2008. As a percentage of net sales, total cost of sales and occupancy for the year increased 120 basis points to 73.9% from 72.7% last year.
Selling, General and Administrative (“SG&A”) Expenses SG&A expenses decreased $11.7 million, or 15.4%, to $64.5 million in the second quarter of fiscal 2009 compared to $76.2 million in the second quarter of fiscal 2008. As a percentage of net sales, SG&A expenses were 35.2% in the second quarter of fiscal 2009 compared to 36.2% in the second quarter of fiscal 2008. The decrease in SG&A expenses as a percentage of net sales was due to the Company’s cost-cutting initiatives, including store closures which resulted in lower payroll, advertising and other controllable expenses. The decrease was partially offset by decreased leverage on lower comparable store sales. Year-to-date, SG&A expenses decreased $19.4 million, or 13.1%, to $129.0 million compared to $148.4 million for the same period last year. As a percentage of net sales, year-to-date SG&A expenses decreased 90 basis points to 35.1% compared to 36.0% for the same period last year.
Net interest expense Net interest expense, which includes interest on capital leases and debt, net of interest earned on investments, was $2.9 million for the second quarter of fiscal 2009 compared to $3.2 million for the second quarter of fiscal 2008. Year-to-date, net interest expense was $5.7 million compared to $6.2 million for the same period last year. The decrease in interest expense was due to a lower interest rate under the Company’s asset-based credit facility.
The Company estimates that fiscal 2009 capital expenditures will approximate $3.2 million; including approximately $1.6 million for management information systems and distribution center projects, $1.1 million allocated to investments in existing stores and various other corporate projects and $0.5 million for new stores. The Company expects to open 2 new stores in the second half of fiscal 2009.
Cash Flows From Financing Activities Net cash provided by financing activities was $25.6 million year-to-date compared to $53.1 million in the same period last year. Borrowings under the Company’s asset-based credit facility increased $26.8 million as of August 1, 2009 from the level at January 31, 2009, compared to an increase of $54.1 million for the same period last year. Principal payments on long-term debt were $404,000 compared to $381,000 in fiscal 2008 and principal payments on capital lease obligations were $781,000 compared to $683,000 in fiscal 2008.
CPWM is in the portfolios of Arnold Van Den Berg of Century Management.
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