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 Troubled home furnishings retailer Cost Plus Inc.'s president and chief executive officer Barry Feld acknowledged that the struggling company may very well be a target for acquisition as its market capitalization continues to recede, but he said the company's recent turnaround moves are designed to keep it independent.
Feld at the Cowen and Co. 7th Annual Consumer Conference in New
York City detailed the company's turnaround efforts launched in May
2006, which have included cost-cutting moves such as store closures and
head count reductions, inventory rationalization, and a merchandising
shift away from big-ticket furniture and toward smaller-ticket items
such as gifts, home decor and gourmet food. The newest casualty of this
turnaround -- the closure of 26 stores and the exit from eight media
markets, announced on Monday.
While Cost Plus' shift to smaller-ticket items may have provided a small lift to store traffic, its bottom line continues to fall as the company has had five straight years of negative earnings growth. As losses mount, the stock slides and buyers (both financial and strategic) have looked to snatch up the retailer on the cheap. Pier 1 Imports Inc., which has had its own share of problems, made an unsolicited offer to buy Cost Plus in early June for $88 million, or $4 per share, which Cost Plus turned down, saying it was too low and not strategically attractive. The company might be kicking itself now as it stock has fallen over 70% since June, trading at 98 cents per share in midday Tuesday trading, bringing its market cap to just shy of $22 million. Private investment bank Stephens Investments Holdings LLC does not appear to be interested in Cost Plus' wishes to stay independent. The bank last week entered into a confidentiality and standstill agreement with the retailer, allowing it to examine its books. The agreement also allows Stephens, which has a 12.3% stake, to buy up to 19.9% of Cost Plus shares before triggering its poison pill, which was previously triggered by a purchase of over 14.9%. Stephens in an early October 13D filing said it had discussed a take-private deal with an unnamed member of Cost Plus management. Feld told The Deal that the offer is not being considered. For a company that is fighting to stay independent, Cost Plus is sure making it easier for an investor like Stephens to swoop in for the kill by letting them check out the books and boost their stake and subsequent voting power. Feld at the conference told The Deal that the company decided to amend the poison pill in order to make it easier for its big investors to buy more shares with the goal of stabilizing the stock price up. "A sustained share price below $1 is a very risky thing," he said, adding that it could lead to a delisting. He added that Cost Plus' largest shareholder Jakup a Dul Jacobsen, chairman of Iceland-based Lagerinn ehf, operator of furniture retailer Jysk, is having his own retail problems and could present a flight risk. "If he sold his 3 million shares, it could be a problem," Feld said. One ominous sign for Cost Plus was the presence of Jeffrey Bloomberg, principal at liquidator Gordon Brothers Group, at the Q&A session following Feld's presentation. Bloomberg stayed quiet during the Q&A, but approached Feld privately afterwards for a little small talk about the paltry state of retail. However, paltry means profits for Gordon Brothers as Bloomberg was overheard telling Feld that business is very good. At least someone is turning a profit amid this mess. - Michael Rudnick Categories Deal Video
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