No Surprise at Cost Plus

Specialty retailer Cost Plus (Nasdaq: CPWM  ) , a Watch List company in the July issue of the Motley Fool Hidden Gems newsletter, delivered what shareholders wanted to hear for the fourth quarter -- no surprises. While flat same-store sales are hardly the formula for long-term stock growth, investors certainly have wondered if the departure of the chief financial officer to Wet Seal (Nasdaq: WTSLA  ) just after Thanksgiving was a harbinger of bad news.

The fourth quarter ends January 28, but the key holiday sales are in. Cost Plus forecasts that results will be at the low end of guidance. That means same-store sales will be flat to down slightly, and earnings will come in close to $1 a share. That guidance matches analyst projections.

The news lifted the shares 5.9% Tuesday, although the stock settling back 2% on Wednesday. Why was there a big move Tuesday? Last quarter, Cost Plus and competitor Pier 1 (NYSE: PIR  ) reported that same-store sales fell 4.7% and 6.5%, respectively, year over year. With Pier 1's December same-store sales down 4.8%, Cost Plus' numbers were worth a cheer by comparison.

Making investors giddy, perhaps, is that Cost Plus has been expanding. It opened an Internet store in October. It will add 25 stores this year, bringing its total store count to 267. But with same-store sales stuck in neutral (or worse), the stock hardly excites this observer.

Competitor Target (NYSE: TGT  ) is making waves with its Global Bazaar, stealing some of the thunder that Cost Plus' World Market image generates. And if big names scare you, don't compare Cost Plus' operating results or balance sheet with those of competitor and Motley Fool Stock Advisor recommendation Bed Bath & Beyond (Nasdaq: BBBY  ) . That company is debt-free and has almost $1 billion in cash, and its operating margins are more than three times those at Cost Plus. And that financial power certainly poses something of a competitive threat.

Analysts are looking for 15% annual earnings growth for the next five years. But at 18 times trailing earnings and in a ripe competitive environment, I wouldn't call Cost Plus a bargain.

Are you looking for great small-cap companies that are ready to grow and gush free cash flow? Let theMotley Fool Hidden Gemsnewsletter bring you two small-cap selections to consider each month. Try a free trial subscription today.

Fool contributor W.D. Crotty does not own any shares in the companies mentioned.Click hereto see The Motley Fool's disclosure policy.

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