Cost Plus Inc. Q1 2010 Earnings Call Transcript

Cost Plus Inc. Q1 2010 Earnings Call Transcript
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Cost Plus Inc. (CPWM)

Q1 2010 Earnings Call

May 20, 2010 4:30 pm ET

Executives

Barry Feld – CEO

Jane Baughman – EVP and CFO

Analysts

Analyst for Budd Bugatch – Raymond James

P

resentation

Operator

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Welcome to the first quarter 2010 Cost Plus earnings conference call. (Operator Instructions) As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Barry Feld, President and Chief Executive Officer. Please proceed, sir.

Barry Feld

Thank you. Good afternoon and thank you for joining us to discuss our first quarter 2010 results. With me today for this conference call are Jane Baughman, Executive Vice President and Chief Financial Officer and Charlie Miltner, our Corporate Controller. Following my opening remarks, Jane will discuss the financial results in detail after which I will make some concluding remarks and then we will open up the call for questions. Before beginning today's discussion, Charlie will read the company's Safe Harbor Statement.

Charlie Peters

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 full-year 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.

Barry Feld

Thank you, Charlie. We are pleased with our first quarter results which exceeded our high end guidance and which were significantly improved from last year. In 2009 management focused on the elements of the business it could control; our unique and value priced merchandise assortments, solution oriented marketing, positive in-store shopping experience and expense management and liquidity.

Our strategy was straight forward; strengthen the fundamentals of the business and position the company for market recovery without dilution to our shareholders. Our first quarter 2010 performance reflects the culmination of this effort and clearly demonstrates our ability to drive same store sales increases while significantly improving merchandise margin. Our buyers have worked closely with our long standing supplier community to secure the pricing concessions needed to re-establish the everyday value pricing that our customers expect without sacrificing quality.

This pricing strategy coupled with the continual advancement of our in-house trend and design capability allows the merchants to maintain a constant flow of unique, brand right products that sets Cost Plus World Market part from the competition. Strategic changes to the business model are reflected in our financial metrics; a positive 5.6% comp, a 450 basis point increase in gross margin rate and lower SG&A expense. This is the first time the company has generated positive EBITDA in Q1 excluding store closure costs since beginning the turnaround.

We continue to see increases in customer count as a result of refining our store marketing strategy and the average ticket has begun to stabilize. The company maintains ample liquidity under its $200 million asset based credit facility to fund working capital and inventory needs. Once again the company’s core strength in seasonal merchandise, both in home décor and holiday entertaining exceeded our expectations. We achieved an even greater sell through of regular price than last year, leaving very little residual to discount after the holidays.

Additionally, higher initial markups and fewer promotional mark downs contributed to the significant improvement in gross profit for the first quarter. Our stores have never looked better. Tight SKU counts supported by the appropriate [depth] and ownership and an ever-changing schematic generates continual excitement across the tree pillars of our brand; home decorating, home entertaining and gift giving.

Our customers are shopping all four corners of the store resulting in a more profitable sales mix. Our sales associates are highly energized by the increased traffic in the stores and are responding with more active customer engagement, deeper product knowledge and faster speed at checkout. Conversion rates increased 160 basis points for the quarter from a year ago.

From a geographic perspective all districts delivered a positive comp in the first quarter with the exception of Arizona which declined slightly. Total sales for the Arizona district did increase by 2.7% as a result of the two new stores opened last year. Business in California and Florida continues to improve and same store sales increased 3.9% and 12.9% respectively for the quarter.

I would now like to turn the call over to Jane after which I will make some concluding remarks.

Jane Baughman

Thank you Barry. As a reminder, the income statement included in this afternoon’s press release clearly breaks out the results from continuing and discontinued operations both for the current year and prior-year periods. The company’s balance sheet presentation remains unchanged.

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