Thumbs up from LA Times Cost Plus (CPWM)
Mike: Jim, our second stock today is Cost Plus. Now, we haven't done
this stock before, but it certainly has a familiar look about it.
Jim: How so?
Mike: It resembles quite a few other companies we've taken a look at,
such as Bed Bath & Beyond. It's a high-potential retailer that sells to people
who are furnishing and refurbishing their homes.
Jim: I'll just step in here by saying this is one of my favorite places to buy
wine at very attractive prices, but it actually has a lot more going for it than
that.
Mike: I hope you're not saying that you spend a lot of time in there.
Jim: Not overly so, no. This outfit, which is headquartered in Oakland and
operates nearly 100 stores in 16 states, specializes in--let's call it unique
casual furnishings, food and other merchandise for the home. About half of
its store space is in California. It certainly seems to have found a niche, and
it has got a lot of things going for it at the moment.
Mike: Why don't you talk about some of those?
Jim: Sure. No. 1, there's plenty of room for Cost Plus to expand. Second,
in its fiscal quarter ended July 31, its net income rose tenfold from a year
earlier, which was something of a depressed period. More important, its
same-store sales, or sales at stores open at least a year, rose a very healthy
8.6% from a year earlier. That's a very good sign.
One thing investors should keep in mind, though, is that much of the
chain's sales and earnings come in its fiscal fourth quarter, around the
holidays. It's really important that Cost Plus execute well in that quarter, but
I think management has proved it has got the bases covered. I'd buy this
stock.
Mike: Certainly its balance sheet tells you that this is a pretty
conservative company. Long-term debt is only about 10% or 11% of total
capitalization.
Jim: Investors have liked what they've seen about Cost Plus in the last
year or two. The stock right now trades in the mid-$40s, which is about 37
times its expected earnings for its fiscal year ending in January. That's pretty
rich for a specialty retailer, but this stock has more than doubled in price in
the last 12 months, Mike, and over the last three years it has nearly tripled.
And that's a helluva lot better than the S&P 500.
Mike: It's not getting too rich for your blood?
Jim: Not at all. By the way, I'll point out also that the company just
announced a 3-for-2 stock split that should occur around Oct. 11. That
should give the stock another modest boost on its own.
Mike: Of course there's one caveat to all this. That's the question of
whether the economy is going to continue strong, and particularly whether
home sales are going to continue strong, because a lot of Cost Plus
customers are people who are buying and furnishing new homes.
Jim: But it's a little different in this case from, say, Bed Bath & Beyond or
even Home Depot. Cost Plus has a unique merchandising strategy. You
don't go to a Cost Plus for furnishing whole rooms of your house, but
mainly for odds and ends, things that you can use to fill in little spaces.
Once you get in there, it has all of the food and drinks and everything
from picture frames to greeting cards to, you name it. So I think even if the
economy turned down and housing turned down, they'd hold up pretty well.
Mike: So that's two thumbs up for Cost Plus.
* * *
|
