The unexpected departure of the top executive at specialty home furnishings retailer

Cost Plus


has longtime observers wondering if there's more bad news to come.

Cost Plus said before the opening bell Wednesday that Murray Dashe, the company's 61-year-old chairman, chief executive and president since 1998, stepped down from his post and plans to retire. It will take a first-quarter pretax charge of $2.3 million for costs associated with Dashe's departure.

The board named Danny Gurr, a director since 1995, president and chief operating officer on an interim basis while it searches for a new CEO. It also named Fredric Roberts, a director since 1999, as the board's nonexecutive chairman.

"I was frankly quite surprised by this," said Morningstar analyst Anthony Chukumba. "It has to be performance-related, and stock-price related. I don't buy that he's really motivated to do this by retirement."

Shares of Cost Plus, a retail chain based in San Francisco that offers imported home furnishings and decor along with gourmet consumables like candies, sauces, spices, cheeses, wines and microbrews, have shed more than 30% of their value since the start of 2004. The carnage follows a stellar year in 2003, when shares jumped 43%.

The company reduced guidance several times over the course of last year, and its misfortunes culminated in a disappointing third-quarter performance that was blamed on missteps by management related to inventory controls. Its profits dropped to $400,000 for the quarter, down from $900,000 in the same quarter last year.

Despite the mistakes, Cost Plus has

garnered an investment following based on its attractive growth prospects. It averaged 21% annual revenue growth over the past five years, as it more than doubled its store base while averaging 5% annual increases in comps. This year, analysts estimate sales will increase by 16%, followed by a 15% increase in 2006.

Optimists say the stock has taken an unfair beating lately, largely due to the backing of its chief competitor by legendary investor Warren Buffett. The chairman and chief executive of

Berkshire Hathaway


, Buffett reported a 9% stake in

Pier 1

(PIR) - Get Report

, another specialty home furnishings chain, last August.

Meanwhile, Pier 1 has had its own difficulties, but Buffett's stamp of approval has prevented a mass exodus. The stock has lost around 13% since the start of 2004, and it has held its ground since Buffett revealed his stake, despite a series of earnings disappointments. Cost Plus has endured the brunt of the selling that has bottled up this once red-hot retailing sector.

Andy Graves, a retail analyst with Pacific Growth Equities, said the skepticism may prove to be well-founded. Before the opening bell on March 17, Cost Plus is expected to report that it earned $1.06 a share in its fourth quarter, according to consensus estimates reported by Thomson First Call, down from $1.18 a share recorded in the same quarter last year. Despite the expected weakness in its bottom line, sales are expected to add about 10% for the quarter, to an estimated $343 million. But Graves said Dashe's departure could signal a major disappointment in store for Wall Street.

"I speculate that profitability at Cost Plus stores, after their capex spending spree of late, is going to prove to be much lower than the company has let on," Graves said. "There's more than meets the eye here, and I think we will hear a material reduction of earnings guidance for 2005."

John Lutrell, a spokesman for Cost Plus, declined to comment, because the company is reporting its fourth-quarter earnings and guidance for 2005 next week. Meanwhile, shares of Cost Plus closed down 84 cents, or 3%, to $27.04 after the announcement.

Despite the news, Chukumba is still optimistic about Cost Plus. He said a shake-up in management could be a positive for the retailer in the long run.

"They've got a ton more room to grow," he said. "I've got a $36 fair value estimate on the stock, and I'm still comfortable with it."