Cost Plus, Inc. (CPWM)
Q2 2010 Earnings Call Transcript
August 19, 2010 4:30 pm ET
Barry Feld – President and CEO
Anne Mirante – VP, Finance and Treasurer
Jane Baughman – EVP and CFO
TJ McConville – Raymond James
Brad Leonard – BML Capital Management
Ed Antoian – Chartwell
Good day ladies and gentlemen and welcome to the second quarter 2010 Cost Plus earnings conference call. My name is Kendal and I will be your operator for today. At this time, all lines are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator instructions)
I would now like to turn the conference over to Mr. Barry Feld, CEO and President. Please proceed.
Thank you, operator. Good afternoon and thank you for joining us to discuss our second quarter and first half 2010 results. With me today for this conference call are Jane Baughman, Executive Vice President and Chief Financial Officer and Anne Mirante, Vice President of Finance. Following my opening remarks, Jane will discuss the financial results in more detail after which I will make some concluding remarks and then we will open the call up for questions. Before beginning today's discussion, Anne will read the company's Safe Harbor Statement.
Certain forward-looking statements regarding the company's future performance and initiatives will be made during this conference call and will usually be preceded by words such as believes, anticipates, projects or expects. Any such forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by these statements. Such forward-looking statements include, but are not limited to, our liquidity position, our financial guidance for the second quarter of fiscal 2010, achieving positive EBITDA for fiscal 2010 and net income for fiscal 2011.
The risks and uncertainties include, but are not limited to, continued deterioration in economic conditions that affect consumer spending, changes in the competitive environment, currency fluctuations, timely introduction and customer acceptance of merchandising offerings, foreign and domestic labor market fluctuations, interruptions in the flow of merchandise, changes in the cost of goods and services purchased including fuel, transportation and insurance, material unfavorable outcomes with respect to litigation, claims and assessments, unseasonable weather, the effects associated with terrorist attacks and changes in accounting rules and regulations.
A more complete listing of risk factors is included in the company documents on file with the Securities and Exchange Commission.
Thank you, Anne. We are pleased with our second quarter results and the continuing momentum in the business. Seamless integration of our marketing and merchandising strategies, combined with improved store execution has led to our most successful quarter since fiscal 2005 without a meaningful change in consumer spending. We achieved a 6.5% same-store sales increase and a 540 basis point improvement in gross profit rate for the second quarter.
Our ability to drive increases in traffic, ticket and margin resulted in a 78% reduction in EBIT losses from continuing operations and a 66% reduction in net loss versus the second quarter of last year. We achieved $2.4 million in EBITDA for the second quarter. This is our third consecutive quarter of positive EBITDA, excluding store closure costs and we have now generated positive EBITDA on a trailing four-quarter basis. These results bode well for the achievement of positive EBITDA in fiscal 2010 and a return to profitability in fiscal 2011.
The year-to-date improvement in merchandise margin is the result of our merchants working diligently to lower the cost of good structure without sacrificing the quality or authenticity of our products. As expected, the reinstatement of everyday value pricing has significantly reduced the need for promotional and clearance markdowns.
We are selling through full-priced goods at a much faster pace. Since beginning the turn around, inventory turnover on a trailing 12-month basis has increased from 2.0 to 2.8 at the end of the second quarter and is steadily approaching a turnover target of 3.
A continual flow of fresh merchandise with exclusive designs provided our customers with creative solutions for both indoor and outdoor entertaining throughout the quarter. In addition, our Mother's Day and Father's Day gift assortments were well received generating both sales and margin gains over the prior year.
We continue to be a one-stop destination for outdoor entertaining and had another very successful outdoor season. Our core competency in outdoor furniture drives traffic and ticket during a time period when other retailers are liquidating summer merchandise to make room for back-to-school.
We continue to expand our marketing toolbox to drive traffic and increase our national presence. Our new marketing strategies support customer-relevant stories and provide a clear World Market point of view in a fresh and engaging manner. Our partnership with Sony Pictures Entertainment for the motion picture “Eat, Pray, Love,” is a recent example of this. Our stores showcased unique and authentic products from Italy, India and Indonesia where the film takes place and where we have been procuring products for decades.
As we look ahead for the second half of the year, our fall harvest, Halloween and holiday merchandise assortments have never looked better and are priced to deliver clear and recognizable value to our customers. The ongoing integration of our marketing, merchandising and visual presentation will continue to drive traffic, ticket and margin and keep our customers shopping all four corners of the store.
I would now like to turn the call over to Jane, after which I will make some concluding remarks.