Cost Plus, Inc. Reports Record Fourth Quarter and Fiscal 2002 Results; Announces Increase in Share Repurchase Program.

Business Editors

OAKLAND, Calif.--(BUSINESS WIRE)--March 20, 2003

Cost Plus, Inc. (Nasdaq:CPWM) announced record results for its fourth quarter and fiscal year ended February 1, 2003 and released initial guidance for its fiscal year ending January 31, 2004.

During the fourth quarter, net sales increased 17.3% to $269.7 million from $229.9 million last year. Same store sales for the quarter increased 2.0% on top of a 2.7% increase in the prior year. For the full year, net sales were $692.3 million, a 21.8% increase from the prior year, with same store sales increasing 5.6% compared to 0.3% in fiscal 2001.

For the fourth quarter, net income was $25.3 million, or $1.14 per fully diluted share compared to $19.8 million or $0.91 per fully diluted share for the fourth quarter of 2001. Net income for fiscal 2002 increased 40.6% to $28.4 million, or $1.28 per fully diluted share, compared to net income of $20.2 million, or $0.93 per fully diluted share in the prior fiscal year. Included in fiscal 2002 net earnings are tax credits and professional fees associated with a recently completed employment and capital investment study. Of the additional net income recognized, in the fourth quarter, $1.8 million or $0.08 per fully diluted share relates to prior years.

The recently completed study, performed in conjunction with outside tax experts, involved quantifying and obtaining taxing authority approval for credits earned from hiring qualifying individuals and making capital investments in defined enterprise zones. Continuing operations in these enterprise zones are expected to have a positive impact on earnings in future years that will result in a lower overall effective tax rate for the Company. For 2003, the Company estimates its combined effective tax rate will decrease to 37% from the 39% rate used in fiscal 2001 and prior years. For the fourth quarter of fiscal 2002, professional fees associated with this tax study and fees associated with a litigation matter that is now resolved are included in selling, general and administrative expenses. Absent these charges fourth quarter SG&A expenses would have been 22.1% of sales, even considering additional discretionary advertising expenditures used to stimulate sales.

During January and February of 2003, the Company completed the repurchase of 500,000 shares of common stock for approximately $12.5 million, and the Board of Directors approved an additional repurchase of up to 500,000 shares under the Company's repurchase program. Management will repurchase shares when the price of the Company's stock creates an opportunity for an effective use of capital beyond what is needed to fund store expansion. The program does not require management to repurchase any shares and can be discontinued at any time.

Murray Dashe, Chairman, CEO and President said, "Record financial performance for the year resulted from increased traffic in our stores, a healthy comparable store sales increase, strong new store performance and tight cost controls. We ended the Holiday season with clean inventories while maintaining gross profit margins. Home furnishing sales were consistent and relatively strong for the quarter, while flat sales performance in the consumable categories was caused by the shorter period between Thanksgiving and Christmas. Our recently completed repurchase of 500,000 shares of common stock and the authorization of the Board of Directors for an additional 500,000 share repurchase reflects our confidence in the Company's consistently improving fundamentals."

"Our guidance for fiscal 2003 suggests ongoing improvements in operating margins from increased efficiency in our distribution activities and prior investments in our infrastructure, somewhat tempered by increases for fuel, property and general liability insurance, and inbound freight costs. We have also planned a conservative same store sales increase of approximately 3% reflecting uncertain economic and geopolitical conditions."

In the fourth quarter, the Company opened six stores, one each in: Redding, CA; Atlanta, GA; Normal, IL; New Orleans, LA; Minneapolis, MN; and Seattle, WA. A total of 25 net new stores were opened during fiscal 2002, as planned. The Company also announced the opening of its first four stores for fiscal 2003 in Rockford, IL; Charlotte, NC; Tracy, CA; and Dallas, TX.

Current first quarter sales trends indicate results for the quarter could be consistent with consensus estimates: a low single-digit same store sales increase yielding earnings per fully diluted share of $0.09 to $0.10. However, given the economic uncertainty associated with a war in Iraq, the Company is unable to provide meaningful first quarter guidance. If the war is short in duration its impact on annual results is not likely to be material and first quarter weakness may be offset by more positive results later in the year. The following guidance for the full fiscal year was prepared on the basis of that assumption.

The Company's net income guidance is at $33.4 million, or $1.50 per fully diluted share. This estimate is predicated on the following major assumptions:

-- The Company will open 29 net new stores vs. 25 net new stores in the prior year.

-- Same store sales growth is expected to be approximately 3.0% vs. 5.6% in the prior year.

-- Total sales will grow to approximately $809.0 million vs. $692.3 million in the prior year. In the event the war with Iraq continues for more than several weeks, the Company anticipates that sales could be negatively impacted beyond what is reflected in these estimates.

-- Gross profit rate is expected to be approximately 35.2% vs. 34.9%, on an improvement in distribution costs including distribution center-to-store freight. Also included are estimated increases in the cost of fuel and the cost of transporting inbound freight from Asia.

-- SG&A rate is expected to be 27.4% vs. 27.8% in the prior year. Included in prior year amounts are costs associated with litigation related to an employee wage and hour dispute settled in the third quarter of fiscal 2002 and professional fees associated with a tax credit study incurred in the fourth quarter of fiscal 2002.

-- Store preopening expense at $6.5 million vs. $5.4 million in the prior year, reflecting 5 more stores opened in fiscal 2003 compared to fiscal 2002.

-- Interest expense at $3.4 million vs. $3.5 million in the prior year.

-- Effective tax rate at 37%, reflecting the continuing favorable impact of the credits earned from the Company's operation in enterprise zones.

-- The weighted average share count for the year is estimated at 22,250,000 vs. 22,158,000 for the prior year. The estimate for fiscal 2003 does not include any additional repurchase of stock beyond the 500,000 shares completed in January and February.

The Company's fourth quarter earnings conference call will be today, March 20, 2003 at 8:00 a.m. PST. It will be held in a "listen-only" mode for all participants other than the Company's current sell-side and buy-side investment professionals. Phone numbers for the call are [phone] or [phone]. Callers are advised to dial in approximately 15 minutes prior to the scheduled start time. A telephonic replay will be available at [phone], Access Code: 21129733 from 10:00 a.m. on March 20th to 10:00 a.m. on March 21st PST. Investors may also access the live call or the replay over the internet at www.streetevents.com; www.companyboardroom.com and www.costplus.com. The replay will be available approximately one hour after the live call concludes.

Cost Plus, Inc. is a leading specialty retailer of casual home living and entertaining products. As of February 1, 2003, the Company operated 175 stores in 23 states compared to 150 stores in 19 states as of February 2, 2002.

The above statements relating to future financial results, operating margins, distribution facilities efficiencies, cost reductions, the impact of war, the availability of future tax credits, share repurchases and store openings are "forward-looking statements" which are based on current expectations and are subject to various risks and uncertainties which could cause actual results to differ materially from those forecasted. Such risk factors include, but are not limited to: the duration of the war with Iraq or other international conflicts, further terrorist activities and our nation's response thereto, unseasonable weather, general economic conditions, changes in fuel costs, changes in transportation rates, fluctuations in the price of the US dollar vs. foreign currencies, delays in the flow of merchandise, the timing and level of markdowns, litigation, claims and assessments, changes in insurance costs, changes in the Company's stock price, new store construction delays, the availability of acceptable new store locations, competitive factors and changes in accounting rules and regulations. Please refer to documents on file with the Securities and Exchange Commission for a more detailed discussion of the Company's risk factors. The Company does not undertake any obligation to update its forward-looking statements.

                            COST PLUS, INC.
            CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
             (Dollars in thousands, except per share data)
                              (Unaudited)

                           Fourth Quarter Ended   Fourth Quarter Ended
                              February 1, 2003     February 2, 2002

Net sales                    $269,727  100.0%       $229,912  100.0%
Cost of sales and occupancy   170,816   63.3         145,285   63.2
 Gross profit                  98,911   36.7          84,627   36.8
Selling, general and
 administrative expenses       60,933   22.6          50,759   22.1
Store preopening expenses       1,296    0.5           1,077    0.4

Income from operations         36,682   13.6          32,791   14.3
Net interest expense              912    0.3             363    0.2

Income before income taxes     35,770   13.3          32,428   14.1
Income taxes                   10,504    3.9          12,647    5.5


Net income                   $ 25,266    9.4%       $ 19,781    8.6%

Net income per share
-- diluted                   $   1.14               $   0.91

Weighted average shares
 outstanding-- diluted         22,249                 21,845

New stores opened                   6                      5

                            Fiscal Year Ended     Fiscal Year Ended
                             February 1, 2003      February 2, 2002

Net sales                    $692,301  100.0%       $568,472  100.0%
Cost of sales and occupancy   450,385   65.1         372,948   65.6
 Gross profit                 241,916   34.9         195,524   34.4
Selling, general and
 administrative expenses      192,284   27.7         156,832   27.6
Store preopening expenses       5,378    0.8           4,612    0.8

Income from operations         44,254    6.4          34,080    6.0
Net interest expense            3,452    0.5             962    0.2

Income before income taxes     40,802    5.9          33,118    5.8
Income taxes                   12,416    1.8          12,916    2.2


Net income                   $ 28,386    4.1%       $ 20,202    3.6%

Net income per share --
 diluted                     $   1.28               $   0.93

Weighted average shares
 outstanding -- diluted        22,158                 21,756

New stores opened                  26                     23



                            COST PLUS, INC.
                 CONDENSED CONSOLIDATED BALANCE SHEETS
                        (Dollars in thousands)
                              (Unaudited)

                                   February 1, 2003   February 2, 2002
ASSETS
Current assets:
 Cash and cash equivalents                $ 49,707         $ 45,420
 Merchandise inventories                   172,388          131,344
 Other current assets                       19,980           16,789

  Total current assets                     242,075          193,553

Property and equipment, net                120,900          110,922
Goodwill                                     4,178            4,178
Other assets                                 7,506            9,287

  Total assets                            $374,659         $317,940


LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
 Accounts payable                         $ 58,119         $ 43,990
 Income taxes payable                        9,478           10,082
 Accrued compensation                       11,645            8,305
 Other current liabilities                  20,064           13,795

  Total current liabilities                 99,306           76,172

Capital lease obligations                   37,972           33,216
Other long-term obligations                 11,601            9,843

Shareholders' equity:
 Common stock                                  215              215
 Additional paid-in capital                136,542          131,730
 Retained earnings                          89,023           66,764

  Total shareholders' equity               225,780          198,709

Total liabilities and shareholders'
 equity                                   $374,659         $317,940