Sell Cost Plus Down to $0.50

First quarter sales and earnings per share for Cost Plus, Inc. (CPWM - Analyst Report) were slightly above our estimates. Even so, the company's sales declined 9% year-on-year and it reported a net loss of $20 million. The company is closing stores, cutting costs, and trying to preserve cash, but those moves will do little reverse its weak sales trends and merchandise margins.

In addition, management's guidance for the second quarter cautioned investors to prepare for more of the same. Cost Plus expects same-store sales to decrease 9.5%-14.5% and a pre-tax loss from continuing operations of $14-$21 million. We reiterate our Sell rating on CPWM shares and our six-month target price of $0.50.

Our discounted cash flow analysis pegs the company's fair value at less than $1. Unless Cost Plus manages to pull off a successful turnaround, its shares are headed lower. We think the stock has downside risk to $0.50.