Cost Plus, Inc. (CPWM)

Cost Plus, Inc. is a specialty retailer of casual living and home entertainment products in the United States and operating through 267 stores as at the end of FY2006. The company's stores offer a large selection of distinctive, value-priced merchandise, both non-consumable and consumable, within four core categories: home décor, gifts and decorative accessories, tabletop items and gourmet food and beverage. Home furnishings accounts for 61% of company revenues, while 39% comes from consumables.

Although the $275 billion US home furnishing retail industry is expected to grow at 4-5% per annum for the next 5 years, Cost Plus seems to be having a weaker position in the near term due to continuous operational problems relating to supply chain and inventory flows compounded with ineffective promotional activities.

While all companies in this sector are being pressured by a weak housing environment, Cost Plus has more company-specific issues and the turnaround initiatives to date have still not shown themselves to be viable. Further downside risks include the possibility of a weakening economy and the unemployment level, which has remained stagnant at an average of 4.6% for past 6 months.

With absolutely no growth in sales and operating margins during the first three quarters in 2007, which was primarily due to a decrease in same stores sales, shift in sales mix to low margin consumables, a poor performance in the margin rich home furnishings segment and an increase of 15% in selling and administration expenses. The financial position of the company seems to be deteriorating inspite of operational changes made by the new management team.