Cost-U-Less Earns More

Fans of the warehouse retail model popularized by such companies as Costco (Nasdaq: COST  ) , Wal-Mart's (NYSE: WMT  ) Sam's Club, and BJ's Wholesale (NYSE: BJS  ) might take interest in a little story developing mostly in the Pacific Ocean. I'm talking about the story of Cost-U-Less (Nasdaq: CULS  ) , a company operating 11 "mid-sized warehouse club-style stores" in American Samoa, California, Fiji, Guam, Hawaii, the Netherlands Antilles, and the U.S. Virgin Islands.

Shares of Cost-U-Less rose nearly 12% in Wednesday trading -- the company's market value is somewhat off recent 52-week highs at approximately $21 million -- and the company has performed well against the S&P 500 over the last 12 months. Yesterday's announcement of second-quarter financial results helps explain why: Quarterly revenues were up 21% to nearly $51 million, gross margins ticked upward, earnings per share more than doubled to $637,000, and same-store sales rose an impressive 15.3%.

It's worth pointing out that in this case, however, when this company complains about the weather it might be worth listening. Both its Guam stores had to be shut down in December 2002 following Supertyphoon Pongsona; one was reopened fairly quickly, but the other had to be reconstructed significantly and didn't reopen until October. Given the company's small store count, that can really have an impact on business -- and management admitted as much in its press release yesterday.

In the end, however, Cost-U-Less has a pretty interesting thing going. It has exported a significantly scaled-down version of the Costco model overseas -- the firm removed membership from the equation and naturally relies very heavily on water transportation and other relatively unique logistical challenges -- to address what might be called "captive" markets with strong acceptance of American products. (It does compete with Wal-Mart, Kmart (Nasdaq: KMRT  ) , and PriceSmart (Nasdaq: PSMT  ) in some markets.)

It's expanding and selecting markets carefully, meanwhile, choosing instead to concentrate on getting the most out of operations while it looks for the right places to put stores. In the end, investors will surely demand signs of growth before taking too big of a Pacific plunge in this tiny company: Cost-U-Less is profitable and historically cash-flow positive, but it has fewer stores now than it did five years ago.

Fool contributor Dave Marino-Nachison doesn't own any of the articles in this story.