CPWM 012312
Cost Plus (CPWM)
Cost Plus is more than a place to go to find cheap wine and beer, unique fun foods and cool quality furnishings; it’s a serious momentum stock. The stock’s increased upward momentum can be attributed to the elevated foot traffic in their stores and solid sales gains in a strained consumer retail space.
By the numbers, Cost Plus has enjoyed 7 consecutive quarters of positive comps and 8 consecutive quarters of increases in customer count in thier stores.
Cost Plus is becoming more than a niche and with 5 to 10 new stores planned for the upcoming year. They are carefully positioning themselves as a real contender in the US retail market with a loyal following of customers, me included.
Company Description & Developments
Cost Plus (aka World Market) operates about 260 stores nationwide. The goal for the company is to grow that number to 500 in the coming years. They have already targeted 100 new potential store locations that fit their demographic.
The stores offer an eclectic mix of everything from exotic (but economical) furnishings to cookware and foods from around the world. Their “store within a store” model lures customers in for more of the one stop shop feel. It helps to cross sell items to customers looking for one good to another.
They fill the void between a major furniture store, traditional wine and food shop and accessory store effectively. This is done with their locally directed products and targeted selection of affordable products. Cost Plus has been in business for over 50 years and they will be entering into 2012 unlevered and debt free, which is extremely beneficial in an uncertain consumer market.
Financial Profile
Cost Plus is a small-cap company (271 million) that is trading at about 31 times trailing earnings (P/E). Looking forward, Zacks Consensus Estimates is estimating that number dropping to 18, with no change in price from these levels. As it stands now the P/E multiples are a bit rich for a company in the space, but if they can maintain growth as anticipated, that premium may be justified.
Cost Plus jumped to a Zacks Rank 1 Strong Buy on the 18th of January.
Cost Plus reported a 4.1% same-store sales increase in their last earnings report on November 18th, 2011. They reduced thier net loss from continuing operations by 21% and generated $4.1 million in EBITDA. This was an increase of 117% versus the same year-to-date period in FY2010.
They are expecting $50 million in EBITDA from continuing operations for the full year, which will be used for working capital purposes and to pay off the revolving credit facility in its entirety at year’s end. The revolving credit facility is their only bank debt.
Last quarter CPWM reported sales growth of 3.75% year over year and 2% over the previous quarter with total sales of roughly 917 million in FY2011. Cost Plus is expected to earn $0.65 in FY2012 according to the Zacks Consensus Estimate.
Earnings Estimates
We saw three analysts revised their current quarter’s earnings estimates up within the past month. In addition, upward revisions from several analysts to next quarter, current year and next year’s estimates ahead of their report in early March have been seen.
Expectations are for Cost Plus to make $1.48 this quarter. Of the 5 analysts who cover the furniture company, the consensus is for the company to grow earnings by 211% in FY2012 and 50% in FY2013.
In terms of the magnitude of analyst estimate trends, we are seeing all of the consensus estimates higher than they were 90 days ago. This bodes well for sentiment among the analysts and makes a bullish case for Cost Plus.
Cost Plus came in line with estimates last quarter, but the average earnings surprise has been a positive 28.25%. Positive surprises have been the norm over the past year.
Market Performance & Technicals
The chart for Cost Plus has been taking the stairway to heaven since hitting a low of $5.57 in early October. Since then the stock is up over 128%! Currently the stock is trading at the upper end of its Bollinger Band envelope. This means that the stock may be overbought in the near term and I would expect a pullback.
Serious momentum has been building in Cost Plus since breaking out of its consolidation pattern in late November. Yesterday, we saw Cost Plus break out into new 52 week high territory. The rally sent shares to a fresh new high of $13.11 on heavy volume.
The stock is firmly above its 50 and 200 day moving averages of $9.61 and $8.81 respectively. The 50 day crossed above the 200 back on January 9th, triggering a technical buy signal.
Cost Plus has outpaced the S&P 500 by 34.5% over the past year and almost 23% over the past month. In 12 weeks alone CPWM is up 50% more than the broad markets. Cost Plus is no doubt a stock to watch, but may have a tough time sustaining these levels. Look to the $11.75 level as first support for an entry ahead of earnings.
Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.
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