Cost Plus (CPWM) 10-Q 2004 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 1, 2003

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

EXCHANGE ACT OF 1934

For the transition period from                    to                            

Commission file number 0-14970

COST PLUS, INC.

(Exact name of registrant as specified in its charter)

California	94-1067973
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

200 4th Street, Oakland, California	94607
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (510) 893-7300

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

The number of shares of Common Stock, $0.01 par value, outstanding on December 2, 2003 was 21,813,174.

COST PLUS, INC.

FORM 10-Q

For the Quarter Ended November 1, 2003

INDEX

		Page
PART I.	FINANCIAL INFORMATION
ITEM 1.	Condensed Consolidated Financial Statements (unaudited)
	Balance Sheets as of November 1, 2003, February 1, 2003 and November 2, 2002	3
	Statements of Operations for the three and nine months ended November 1, 2003 and November 2, 2002	4
	Statements of Cash Flows for the nine months ended November 1, 2003 and November 2, 2002	5
	Notes to Condensed Consolidated Financial Statements	6-7
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8-11
ITEM 3.	Quantitative and Qualitative Disclosure about Market Risk	11
ITEM 4.	Controls and Procedures	11
PART II.	OTHER INFORMATION
ITEM 6.	Exhibits and Reports on Form 8-K	11
SIGNATURE PAGE		12

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

COST PLUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts, unaudited)

	November 1, 2003		February 1, 2003		November 2, 2002
ASSETS
Current assets:
Cash and cash equivalents	$	3,705	$	49,707	$	4,712
Merchandise inventories, net		250,244		172,388		204,478
Other current assets		25,072		19,980		19,663
Total current assets		279,021		242,075		228,853
Property and equipment, net		123,408		120,900		119,676
Goodwill		4,178		4,178		4,178
Other assets, net		6,586		7,506		8,724
Total assets	$	413,193	$	374,659	$	361,431
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	59,885	$	58,119	$	43,279
Income taxes payable		—		9,478		—
Accrued compensation		9,255		11,645		6,589
Revolving line of credit		35,900		—		37,400
Other current liabilities		18,347		20,064		19,101
Total current liabilities		123,387		99,306		106,369
Capital lease obligations		36,632		37,972		38,402
Other long-term obligations		14,127		11,601		10,946
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $0.01 par value: 5,000,000 shares authorized; none issued and outstanding		—		—		—
Common stock, $0.01 par value: 67,500,000 shares authorized; issued and outstanding 21,795,492, 21,555,643 and 21,739,933 shares		218		215		217
Additional paid-in capital		147,074		136,542		135,613
Retained earnings		91,755		89,023		69,884
Total shareholders’ equity		239,047		225,780		205,714
Total liabilities and shareholders’ equity	$	413,193	$	374,659	$	361,431

See notes to condensed consolidated financial statements.

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COST PLUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts, unaudited)

	Three Months Ended						Nine Months Ended
	November 1, 2003			November 2, 2002			November 1, 2003			November 2, 2002
Net sales	$	170,019		$	149,886		$	488,997		$	422,574
Cost of sales and occupancy		113,061			99,676			322,678			279,569
Gross profit		56,958			50,210			166,319			143,005
Selling, general and administrative expenses		53,067			49,125			150,148			131,351
Store preopening expenses		1,567			1,213			3,834			4,082
Income (loss) from operations		2,324			(128	)		12,337			7,572
Interest income		5			7			400			231
Interest expense		(967	)		(1,027	)		(2,746	)		(2,771	)
Income (loss) before income taxes		1,362			(1,148	)		9,991			5,032
Income tax provision (benefit)		504			(436	)		3,697			1,912
Net income (loss)	$	858		$	(712	)	$	6,294		$	3,120
Net income (loss) per share
Basic	$	0.04		$	(0.03	)	$	0.29		$	0.14
Diluted	$	0.04		$	(0.03	)	$	0.28		$	0.14
Weighted average shares outstanding
Basic		21,740			21,733			21,561			21,672
Diluted		22,537			21,733			22,228			22,126

See notes to condensed consolidated financial statements.

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COST PLUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

	Nine Months Ended
	November 1, 2003			November 2, 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	6,294		$	3,120
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		16,578			15,292
Changes in assets and liabilities:
Merchandise inventories		(77,856	)		(73,134	)
Other assets		(4,469	)		(2,648	)
Accounts payable		1,766			(711	)
Income taxes payable		(6,913	)		(9,026	)
Other liabilities		(1,679	)		3,943
Net cash used in operating activities		(66,279	)		(63,164	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(20,137	)		(17,114	)
Proceeds from sale of property and equipment		1,348			90
Net cash used in investing activities		(18,789	)		(17,024	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving line of credit		35,900			37,400
Common stock repurchases		(4,708	)		—
Principal payments on capital lease obligations		(1,242	)		(750	)
Proceeds from issuance of common stock		9,116			2,830
Net cash provided by financing activities		39,066			39,480
Net decrease in cash and cash equivalents		(46,002	)		(40,708	)
Cash and cash equivalents:
Beginning of period		49,707			45,420
End of period	$	3,705		$	4,712
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest	$	2,574		$	2,286
Cash paid for taxes	$	10,833		$	11,161
NON-CASH FINANCING:
Capital lease obligations related to distribution center	$	—		$	6,686

See notes to condensed consolidated financial statements.

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COST PLUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three and Nine Months Ended November 1, 2003 and November 2, 2002

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared from the records of Cost Plus, Inc. (the “Company”) without audit and, in the opinion of management, include all adjustments (consisting only of normal recurring accruals) necessary to present fairly the Company’s financial position at November 1, 2003 and November 2, 2002, the interim results of operations for the three and nine months ended November 1, 2003 and November 2, 2002, and the changes in cash flows for the nine months then ended. The balance sheet at February 1, 2003, presented herein, has been derived from the audited financial statements of the Company for the fiscal year then ended.

Accounting policies followed by the Company are described in Note 1 to the audited consolidated financial statements for the fiscal year ended February 1, 2003. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted for purposes of presenting the interim condensed consolidated financial statements. Such statements should be read in conjunction with the audited consolidated financial statements, including notes thereto, for the fiscal year ended February 1, 2003.

The results of operations for the three and nine month periods ended November 1, 2003 presented herein are not necessarily indicative of the results to be expected for the full year.

2. EMPLOYEE STOCK COMPENSATION

Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation”, establishes a fair value method of accounting for stock options and other equity instruments. SFAS No. 123 requires the disclosure of pro forma net income and earnings per share as if the Company had adopted the fair value method. For determining pro forma earnings per share, the fair value of the stock options and employees’ purchase rights were estimated using the Black-Scholes option pricing model.

The Company’s calculations are based on a multiple option approach and forfeitures are recognized as they occur. Had compensation cost for these stock option and stock purchase plans been determined based on the fair value at the grant dates for awards under those plans consistent with the methods of SFAS No. 123, the Company’s net income and net income per share would have been reduced to the pro forma amounts indicated below:

	Three Months Ended						Nine Months Ended
(In thousands, except per share data)	November 1, 2003			November 2, 2002			November 1, 2003			November 2, 2002
Net income (loss), as reported	$	858		$	(712	)	$	6,294		$	3,120
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effect.		(1,171	)		(1,123	)		(3,508	)		(3,331	)
Pro forma net income (loss)	$	(313	)	$	(1,835	)	$	2,786		$	(211	)
Basic net income (loss) per weighted average share:
As reported	$	0.04		$	(0.03	)	$	0.29		$	0.14
Pro forma	$	(0.01	)	$	(0.08	)	$	0.13		$	(0.01	)
Diluted net income (loss) per weighted average share:
As reported	$	0.04		$	(0.03	)	$	0.28		$	0.14
Pro forma	$	(0.01	)	$	(0.08	)	$	0.13		$	(0.01	)

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3. RECONCILIATION OF BASIC SHARES TO DILUTED SHARES

The following is a reconciliation of the weighted average number of shares (in thousands) used in the Company’s basic and diluted per share computations.

	Three-Months Ended								Nine-Months Ended
	Basic EPS (Loss)			Effect of Dilutive Stock Options		Diluted EPS (Loss)			Basic EPS		Effect of Dilutive Stock Options			Diluted EPS
November 1, 2003
Shares		21,740			797		22,537			21,561		667			22,228
Amount	$	0.04		$	0.00	$	0.04		$	0.29	$	(0.01	)	$	0.28
November 2, 2002
Shares		21,733			0		21,733			21,672		454			22,126
Amount	$	(0.03	)	$	0.00	$	(0.03	)	$	0.14	$	0.00		$	0.14

Options to purchase 43,763 and 206,399 shares of common stock were outstanding for the nine-months ended November 1, 2003 and November 2, 2002, but were not included in the computation of diluted earnings per share because their exercise price was in excess of the average market price and their effect would be antidilutive. There were no antidilutive options to purchase common stock for the three months ended November 1, 2003 and for the three months ended November 2, 2002 there were 2,166,973 shares of common stock outstanding that were not included in the computation of diluted earnings per share for the quarter because the effect would be antidilutive due to the net loss for the quarter.

4. REVOLVING LINE OF CREDIT

The Company has an unsecured revolving line of credit agreement with a group of banks that expires on June 1, 2005. The agreement allows for cash borrowings and letters of credit up to $30.0 million from January through June of each year, increasing to $75.0 million from July through December of each year to coincide with Holiday borrowing needs. Interest is paid quarterly in arrears on base rate loans and at each interest period applicable to IBOR loans (30, 60 and 90 days) based on the Company’s election of the bank’s reference rate or IBOR plus 0.9% through June 1, 2003, increasing to IBOR plus 1.125% from June 2, 2003 to June 1, 2004 and IBOR plus 1.25% from June 2, 2004 to June 1, 2005. The agreement requires a 30-day “clean-up period” each year where outstanding credit advances, as defined in the agreement must be zero for not less than 30 consecutive days during the period from January 1, 2004 through March 31, 2004 and from January 1, 2005 through March 31, 2005. The Company is subject to and in compliance with certain financial covenants customary to such agreements. At November 1, 2003, the Company had $35.9 million outstanding in borrowings under its line of credit agreement and $14.3 million outstanding under its letters of credit.

5. SHAREHOLDERS’ EQUITY

Stock Repurchase Program

During the first quarter of fiscal 2003, the Company repurchased 201,400 shares of its common stock for $4.7 million. In February 2003, the Company’s Board of Directors approved an additional repurchase of up to 500,000 shares of common stock under the program. No additional shares were repurchased during the second and third quarters of fiscal 2003. The Company will repurchase common stock when the price of its common stock creates an opportunity for an effective use of capital beyond what is needed to fund store expansion. The program does not require the Company to repurchase any common stock and can be discontinued at any time.

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ITEM  2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

AN ASTERISK “*” DENOTES A FORWARD-LOOKING STATEMENT REFLECTING CURRENT EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS AND SHAREHOLDERS OF COST PLUS, INC. (THE “COMPANY” OR “COST PLUS”) SHOULD CAREFULLY REVIEW THE CAUTIONARY STATEMENTS SET FORTH IN THIS FORM 10-Q, INCLUDING, “FACTORS THAT MAY AFFECT FUTURE RESULTS” BEGINNING ON PAGE 9 HEREOF. THE COMPANY MAY FROM TIME TO TIME MAKE ADDITIONAL WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS CONTAINED IN THE COMPANY’S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION AND IN ITS REPORTS TO SHAREHOLDERS. THE COMPANY DOES NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING STATEMENT THAT MAY BE MADE FROM TIME TO TIME BY OR ON BEHALF OF THE COMPANY.

Results of Operations

The three-months (third quarter) and nine-months (year-to-date) ended November 1, 2003, as compared to the three-months and nine-months ended November 2, 2002.

Net Sales. Net sales increased $20.1 million, or 13.4%, to $170.0 million in the third quarter of fiscal 2003 from $149.9 million in the third quarter of fiscal 2002. Year-to-date, net sales were $489.0 million compared to $422.6 million for the same period of fiscal 2002, an increase of $66.4 million or 15.7%. The increases in net sales for the third quarter and year-to-date periods were attributable to new store sales and increased comparable store sales. Comparable store sales increased 1.2% in the third quarter compared to a 14.1% increase last year. Year-to-date comparable store sales increased 2.5% versus an increase of 8.0% in the prior year. Comparable store sales increased primarily as a result of an increase in average transaction size due to strong net sales increases in products such as furniture that carry a higher average retail price. Sales mix during the quarter was consistent with the prior year with home furnishings comprising 66% of total sales and consumables accounting for 34%. Year-to-date, home furnishings accounted for 65% of total sales compared with 66% last year, and consumables accounted for 35% of total sales compared with 34% last year. Non-comparable store sales, which include all stores open less than fourteen full fiscal months, increased $18.4 million for the third quarter and $56.5 million year-to-date as compared to the prior year. As of November 1, 2003, the Company operated 195 stores compared to 169 stores as of November 2, 2002.

Cost of Sales and Occupancy. Cost of sales and occupancy, which consists of costs to acquire merchandise inventory, costs of freight and distribution, as well as certain facility costs, increased $13.4 million, or 13.4%, to $113.1 million in the third quarter of fiscal 2003 compared to $99.7 million for the third quarter of fiscal 2002. Year-to-date, cost of sales and occupancy increased $43.1 million, or 15.4%, to $322.7 million as compared to $279.6 million for the same period of fiscal 2002. Cost of sales increased $10.1 million and $34.5 million for the quarter and year-to-date respectively. The increase is primarily due to the increased sales volume for the quarter and on a year-to-date basis. Occupancy costs increased $3.3 million and $8.6 million for the quarter and year-to-date respectively. The increase is due to the addition of 26 net new stores as of November 1, 2003 compared to a year ago and increases in common area maintenance costs passed through by landlords. Total cost of sales and occupancy for the third quarter, as a percentage of net sales, remained approximately the same at 66.5% compared to the third quarter of fiscal 2002. Year-to-date, total cost of sales and occupancy, as a percentage of net sales, decreased 0.2 percentage points to 66% primarily as a result of higher initial mark-ups, lower markdowns and the effects of distribution center cost efficiencies, partially offset by higher fuel and occupancy costs.

Gross Profit. As a percentage of net sales, gross profit for the third quarter of fiscal 2003 remained approximately the same at 33.5% compared to the third quarter of fiscal 2002. Although third quarter gross profit as a percentage of sales was consistent with last year, the Company experienced improved margins related to distribution center cost efficiencies and higher mark-ups which were offset by higher mark downs and occupancy costs. Year-to-date gross profit as a percentage of net sales was 34% this fiscal year compared to 33.8% last fiscal year. The increase in year-to-date gross profit percentage resulted from higher initial mark-ups, lower markdowns and distribution center cost efficiencies partially offset by higher fuel and occupancy costs.

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Selling, General and Administrative (“SG&A”) Expenses. As a percentage of net sales, SG&A expenses decreased to 31.2% in the third quarter of fiscal 2003 from 32.8% in the third quarter of the prior fiscal year. Year-to-date, SG&A expense decreased to 30.7% in the current fiscal year from 31.1% last fiscal year. The decrease in SG&A as a percentage of sales for the third quarter and year-to-date was primarily due the settlement of a wage and hour lawsuit which resulted in a charge to SG&A expense in the third quarter of fiscal 2002. SG&A expense also decreased as a percentage of sales due to improved experience in health care costs and lower corporate overhead when expressed as percentage of sales. The reduced overhead rates resulted from relatively flat costs being spread over a higher sales base.

Store Preopening Expenses. Store preopening expenses, which include grand opening advertising and preopening merchandise set up expenses, were $1.6 million in the third quarter of fiscal 2003 and $1.2 million in the third quarter of the prior fiscal year. The Company opened eight stores in the third quarter of fiscal 2003 and six stores for the same period last year. Year-to-date, store preopening expenses were $3.8 million in fiscal 2003 compared to $4.1 million in fiscal 2002, with 21 stores opened year-to-date versus 20 stores in the same period last year. Expenses vary depending on the particular store site and whether it is located in a new or existing market.

Interest Income. Interest income was insignificant for the third quarter of fiscal 2003 and 2002. Year-to-date interest income increased $169,000 for fiscal 2003 compared to year-to-date fiscal 2002. The increase in the year-to-date balance was the result of interest income on income tax refunds.

Interest Expense.Interest expense, which includes interest on capital leases and interest expense on the Company’s revolving line of credit was $967,000 for the third quarter, a $60,000 decrease from the third quarter last year. The decrease is due to a reduction in capital lease obligations compared to the same period last year. Year-to-date interest expense remained approximately the same at $2.7 million compared to the same period last year.

Income Taxes. The Company’s effective tax rate was 37.0% and 38.0% in fiscal 2003 and fiscal 2002, respectively. The change in the effective rate was primarily due to additional state incentive tax credits in the current year.

Factors That May Affect Future Results

The Company’s quarterly and annual results of operations may be materially impacted by certain risk factors which include, but are not limited to: changes in economic conditions that effect consumer spending, ongoing competitive pressures in the retail industry, obtaining acceptable store locations, timely introduction and customer acceptance of the Company’s merchandise offering, litigation, claims and assessments against the Company, the Company’s ability to realize the expected operational and cost efficiencies from its distribution centers, the Company’s ability to successfully extend its geographic reach into new markets, changes in the level of consumer spending on, or preferences for, home-related merchandise, the Company’s ability to attract and retain the retail talent necessary to execute its strategies, international conflicts and political strife including the effects on the flow or price of merchandise from overseas, the number and timing of store openings and related store preopening expenses, the amount of net sales contributed by new and existing stores, the mix of products sold, the timing and level of markdowns, store closings or relocations, changes in fuel and other shipping costs, labor market fluctuations, changes in accounting rules and regulations and unseasonable weather conditions.

The Company’s business is highly seasonal, reflecting the general pattern associated with the retail industry of peak sales and earnings during the fourth quarter (Holiday) selling season. Due to the importance of the Holiday selling season, the fourth quarter of each fiscal year has historically contributed, and the Company expects it will continue to contribute, a disproportionate percentage of the Company’s net sales and most of its net income for the entire fiscal year.* Any factors negatively affecting the Company during the Holiday selling season in any year, including unfavorable economic conditions, could have a material adverse effect on the Company’s financial condition and results of operations. In addition, the Company makes decisions regarding merchandise well in advance of the season in which it will be sold. Significant deviations from projected demand for products could have a material adverse effect on the Company’s financial condition and results of operations, either by lost sales due to insufficient inventory or lost gross margin due to the need to mark down excess inventory.*

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Liquidity and Capital Resources

The Company’s primary uses for cash are to fund operating expenses, inventory requirements and new store expansion. Historically, the Company has financed its operations primarily from internally generated funds and seasonal borrowings under the Company’s revolving credit facility. The Company believes that the combination of its cash and cash equivalents, internally generated funds and available borrowings under its revolving line of credit will be sufficient to finance its working capital and capital expenditure requirements for at least the next twelve months.*

Net cash used in operating activities for the nine months ended November 1, 2003 was $66.3 million compared to $63.2 million for the same period last year. The increase in net cash used in operating activities resulted primarily from the payment of a legal settlement that was accrued in fiscal 2002, the payment of higher employee bonuses resulting from strong financial performance in fiscal 2002, and increased merchandise inventory purchases year-to-date. Merchandise inventory purchases were higher primarily due to the addition of 26 net new stores as of November 1, 2003 compared to November 2, 2002. The increase in net cash used in operating activities was partially offset by improved net income adjusted for non-cash related depreciation and amortization, a favorable change in income taxes payable primarily resulting from state incentive tax credits, and an increase in accounts payable due to the timing of expenditures.

Net cash used in investing activities was $18.8 million for the nine months ended November 1, 2003 compared to $17.0 million for the same period last year and includes $1.3 million in proceeds from the sale of property and equipment in the current fiscal year versus $0.1 million in the prior year. The increase is primarily due to capital expenditures on store remodeling projects, increased spending on management information systems and enhancements, and the opening of one more store compared to the nine month period last year. The Company estimates that capital expenditures will approximate $27.5 million in fiscal 2003.*

Net cash provided by financing activities for the nine months ended November 1, 2003 was $39.1 million compared to $39.5 million for the same period last year. The decrease is primarily due to lower net borrowings under the revolving line of credit and to the repurchase of the Company’s common stock in the first quarter of 2003 partially offset by higher proceeds from the issuance of common stock in connection with the Company’s stock option and stock purchase plans. For the nine months ended November 1, 2003 cash provided by net borrowings under the revolving line of credit was $35.9 million compared to $37.4 million last year. The Company used $4.7 million in cash to repurchase 201,400 shares of its common stock this year-to-date and had no stock repurchases for the same period last year. Proceeds from the issuance of common stock in connection with the Company’s stock option and employee stock purchase plans were $9.1 million and $2.8 million for the current year-to-date and prior year-to-date period, respectively.

The Company has an unsecured revolving line of credit agreement with a group of banks that expires on June 1, 2005. The agreement allows for cash borrowings and letters of credit up to $30.0 million from January through June of each year, increasing to $75.0 million from July through December of each year to coincide with Holiday borrowing needs. Interest is paid quarterly in arrears on base rate loans and at each interest period applicable to IBOR loans (30, 60 and 90 days) based on the Company’s election of the bank’s reference rate or IBOR plus 0.9% through June 1, 2003, increasing to IBOR plus 1.125% from June 2, 2003 to June 1, 2004 and IBOR plus 1.25% from June 2, 2004 to June 1, 2005. The agreement requires a 30-day “clean-up period” each year where outstanding credit advances, as defined in the agreement must be zero for not less than 30 consecutive days during the period from January 1, 2004 through March 31, 2004 and from January 1, 2005 through March 31, 2005. The Company is subject to and in compliance with certain financial covenants customary to such agreements. At November 1, 2003, the Company had $35.9 million outstanding in borrowings under its line of credit agreement and $14.3 million outstanding under its letters of credit. The Company believes the line of credit is sufficient to meet its borrowing needs for the next 12 months.*

Available Information

The Company’s Internet website address ishttp://www.costplus.com. Since February 26, 2003, the Company has made available through its Internet website, free of charge its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,

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Current Reports on Form 8-K, Definitive Proxy Statement and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the SEC.

ITEM  3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

There are no material changes to our market risk as disclosed in the Company’s report on Form 10-K filed for the fiscal year ended February 1, 2003.

ITEM  4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures. Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in internal control over financial reporting. There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM  6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

31.1	Certification of the Chief Executive Officer of the Registration pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer of the Registration pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer and Chief Financial Officer of the Registration pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

On August 11, 2003, the Company filed a current report on Form 8-K dated August 11, 2003, reporting a press release regarding the Company’s fiscal 2003 second quarter sales and same store sales data and endorsed its second quarter earnings guidance.

On August 21, 2003, the Company filed a current report on Form 8-K dated August 21, 2003, reporting a press release regarding the Company’s fiscal 2003 second quarter sales and earnings data and provided third quarter earnings guidance and updated full year earnings guidance.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		COST PLUS, INC. Registrant
Date:	December 11, 2003		/s/ JOHN J. LUTTRELL
			By:    John J. Luttrell
			Senior Vice President             Chief Financial Officer             Duly Authorized Officer

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INDEX TO EXHIBITS

31.1	Certification of the Chief Executive Officer of the Registration pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer of the Registration pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer and Chief Financial Officer of the Registration pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.