Hold on to your shopping carts, treasure-hunting investors. You could be in for a bit of a roller coaster ride on the morrow, when World Market operator Cost Plus (NASDAQ:CPWM) reports its Q1 2006 numbers. Expectations are low, but that doesn't mean the company can't underperform them. On the other hand, the bar is set so low that Cost Plus shares could fly on even the tiniest bit of good news. Please, for your own safety, no standing in the carts.
What analysts say:
- Buy, sell, or waffle? Seventeen analysts still follow Cost Plus, but less positively than they were two months ago. The current tally reads: four buys, 10 holds, and three sells.
- Revenues. Analysts are hoping to see 9% sales growth to $217.2 million tomorrow.
- Earnings. But they're pretty sure profits will plunge, and the firm will wind up with a $0.16 per-share loss.
What management says:
In the continuation of a sad, sad, trend, Cost Plus management disappointed investors with its report on Q1 sales earlier this month. The company characterized its results as "mixed" -- sales were up 6.5% (good), but not the 9% Wall Street was looking for (bad). Same-store sales declined 4%, which was worse than the 2% decline posted in the year-ago quarter (bad), and also worse than the company had promised back in March (when it predicted negative 3% to flat. So that's bad, too.)
The good news at Cost Plus -- the total sales increase -- seems to be owing almost entirely to improved sales of consumables (that's business-speak for food and such). Sales of home furnishings, however, were weak, and it appears that the failure to move those big ticket items is what did the quarter in.
What management does:
You've probably already figured this out for yourself. Sales grew, albeit more slowly than Wall Street had expected, yet the company is pegged for a loss tomorrow. Therefore, Cost Plus' margins must still be on the decline. That's been the trend for the past 18 months, and until we hear evidence to the contrary, that's what it's safest to assume we'll see tomorrow.
|
Margins % |
10/04 |
1/05 |
4/05 |
7/05 |
10/05 |
1/06 |
|---|---|---|---|---|---|---|
|
Gross |
34.7 |
34.1 |
34 |
34.1 |
34.1 |
33.7 |
|
Op. |
6.3 |
5.7 |
5.3 |
5 |
4.6 |
4.2 |
|
Net |
3.8 |
3.3 |
2.9 |
2.7 |
2.3 |
2.1 |
The Fool says:
We haven't yet heard from many of Cost Plus's competitors on their own comparable sales. Pier 1 (NYSE:PIR), however, has reported its sales numbers -- and the news was even worse than what Cost Plus reported. Not only were comparable sales down, but overall sales declined as well. But don't go thinking this is an industrywide phenomenon. Pier 1 hasn't been considered one of the stronger competitors in this space for quite some time, and Bed Bath & Beyond (NASDAQ:BBBY), for example, was doing just fine when we last heard from it. If Cost Plus is to turn around, it's going to have to do so on its own and not depend on some kind of "industry recovery" to cure ills that are of its own making.
Where to look for signs of a turnaround? Last quarter, we got one clue, when Cost Plus finally began to trim its inventories -- if only infinitesimally so. Tomorrow, make sure to check the inventories line of the company's balance sheet and confirm that it's still on track in that department. On the other hand, if inventories start outpacing sales growth again, hold on to your shopping cart -- we could have still further to fall.
Competitors:
- Michaels (NYSE:MIK)
- Target (NYSE:TGT)
- Williams-Sonoma (NYSE:WSM)
- Restoration Hardware (NASDAQ:RSTO)
Bed Bath & Beyond is a Motley Fool Stock Advisor recommendation. Take the newsletter dedicated to the very best of David and Tom Gardner's scorecard for a 30-day free trial.
Fool contributor Rich Smith does not own shares of any company named above.
