If you heard a sonic boom on Friday, it might have been caused by Cost Plus's (Nasdaq: CPWM ) meteoric rise into the stock market's stratosphere. On the day the Oakland, Calif.-based company -- which competes in a space also occupied by the likes of Bed Bath & Beyond (Nasdaq: BBBY ) , Linens 'n Things (NYSE: LIN ) , Pier 1 Imports (NYSE: PIR ) , and Williams-Sonoma (NYSE: WSM ) -- announced its third-quarter results, investors strapped a rocket booster onto its shares, which shot up by almost 11% on the day.
To any dispassionate reader of the company's announcement, however, that trajectory had to seem a bit like science fiction.
After all, the retailer's results were, in a word, grim. The company posted a third-quarter loss of $2.7 million, a figure that translates into a loss of $0.12 per share for investors. Those numbers compare unfavorably with the $0.3 million and $0.01 per diluted share the company delivered during 2004's third period, but still, they were in line with analyst estimates. It's safe to assume, then, that at least part of the stock's performance on the day was due to a collective sigh of relief that the quarter wasn't worse than anticipated.
That said, the pop also likely stems from the fact that, despite shedding some $1.3 million (or $0.06 per share) for the nine months ended Oct. 29, Cost Plus' announcement included guidance suggesting that earnings would jump into the black for the full fiscal year and be in the vicinity of $0.92 to $1.01 per stub.
So how, exactly, does the company intend to make that mathematical magic happen?
Well, as Rich Smith points out here, a retailer like Cost Plus can expect to do the bulk of its business during the upcoming holiday season -- a period that coincides with its fourth fiscal quarter. Moreover, in its announcement, Cost Plus offered its guidance in cautious tones. Among other things, the company indicated that its green-eyeshade department had factored in a less-than-buoyant shopping season -- not to mention a $3.3 million pre-tax charge it took to shutter five stores and see its former CEO out the door -- before settling on the range it offered.
I admire that cautious stance, but it does raise the stakes for the company's fourth quarter. After all, if Cost Plus fails to hit its numbers even after marking them down on the basis of admirably conservative assumptions, the same shareholders who blasted the stock into outer space on Friday might well cause it to splash down hard come Q4 reporting time.
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