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Cost Plus Inc.

by Jared Levy

March 28, 2012 | Comments : 0 Recommended this article: (0)

Cost Plus (CPWM)

Cost Plus (aka World Market) operates 258 stores nationwide that offer an eclectic mix of everything from exotic (but economical) furnishings to cookware and foods from around the world.

Last time CPWM hit the Zacks Rank #1 buy list on January 24, 2011 it was a $12 dollar stock; fast forward less than two months and the shares are up 50%, now trading close to $18 after hitting a 5 year high of $18.66.

In January my focus was on World Market’s unique positioning, growth prospects and expansion. I also saw analysts moving their estimates higher ahead of the earnings report which can be one of the best indicators if a stock is going to maintain momentum.

All of these factors combined made CPWM a solid Zacks Rank Buy candidate. The retailer delivered those anticipated bullish results on March 22nd, beating Zacks Consensus Estimates and sending shares higher. The question now is whether this momentum can continue?

Earnings Highlights

(From their press release)

Same store sales for the quarter increased 7.6% on top of a 7.7% increase for the same quarter last year.
Same store customer count for the quarter increased 3.4% and same store average ticket increased 4.1%.
Net sales for fiscal 2011 were $963.8 million, a 5.2% increase compared to $916.6 million for fiscal 2010.
Net income from continuing operations for fiscal 2011 was $17.7 million compared to $4.7 million for fiscal 2010.
Earnings per diluted share from continuing operations for fiscal 2011 was $0.76 compared to $0.21 last year.
They had no outstanding borrowings as of January 28, 2012 compared to $25.4 million outstanding borrowings last year.
Non-GAAP EBITDA from continuing operations for fiscal 2011 was $51.3 million compared to $39.5 million for fiscal 2010.

Looking ahead
The company is executing their plan to grow their total number of stores to 500, but they are going to slow things down a bit in the first half of 2012 until the economy shows improvement.

That said, Cost Plus is expecting a 6% to 8% increase in year over year, same store sales for Q1 2012 and a reduction in their Q1 net loss from continuing operation to between -$0.03 and -$0.07 per diluted share compared to -$0.13 per share for Q1 2011.

CPWM is targeting to open five to ten new stores and the outlook includes an estimate of eight new stores, including two relocations, compared to five store closures and one relocation during fiscal 2011.

Earnings Estimates
In the past week alone since the report, we saw two analysts revised their current quarter’s earnings estimates up as well as 1 upward revisions to next quarter’s results, 5 upward revisions for current year and next year’s estimates got a boost from 4 analysts. There was only one negative revision from one analyst for next quarter’s results.

Expectations are for Cost Plus to lose 0.05 this quarter. Of the 6 analysts that cover the furniture company, the consensus is for the company to grow earnings by 46.27% in the current year (FY2012) and 11.24% in FY2013.

In terms of the magnitude of analyst estimate trends, we are seeing all of the consensus estimates higher than they were 90 days ago, except for next quarter’s estimate.

Cost Plus beat estimates by 4% last quarter and has averaged an earnings surprise of 20.17% over the past year.

Market Performance & Technical’s
CPWM remains in a bullish pattern, but is seeing some profit taking after rallying to new highs on the bullish report. Look for $15.25 to be an area of strong support for the stock. Below that the 50 day moving average remains a level that Cost Plus hasn’t broken for more than a day since October of 2011. The 50 day moving average currently stands at $14.29.

If the stock can hold the $17.15 level, which is the bottom of most recent gap, then the shares should continue their march higher.

Cost Plus has outpaced the S&P 500 by 73% over the past year and almost 67% over the past 3 months alone. The recent run and subsequent gap on their earnings report enabled CPWM to beat the S&P by 26% over the past month!