Cost Plus (CPWM) 10-K 2011 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended January 28, 2012

OR

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $0.01 par value	The NASDAQ Stock Market LLC
	(NASDAQ Global Select)

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a small reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨	Accelerated filer  x
Non-accelerated filer  ¨ (Do not check if a smaller reporting company)	Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No  x

The aggregate market value of voting stock held by non-affiliates of the registrant based upon the closing sale price of the common stock on July 29, 2011, the last trading day of the registrant’s most recently completed second fiscal quarter, was approximately $170.6 million as reported for such date on the Nasdaq Global Select Market. Shares of the registrant’s common stock beneficially held by each executive officer and director have been excluded in that such persons are deemed to be affiliates. This determination of affiliate status is not necessarily conclusive determination for other purposes. As of April 6, 2012, 22,490,362 shares of Common Stock, $.01 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s proxy statement for the Annual Meeting of Shareholders to be held in 2012 (“Proxy Statement”) are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent stated herein, which Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. Except with respect to information specifically incorporated herein by reference, the Proxy Statement is not deemed to be filed as part hereof.

COST PLUS, INC.

TABLE OF CONTENTS

2011 FORM 10-K

		Page
PART I
Item 1.	Business		1
Item 1A.	Risk Factors		6
Item 1B.	Unresolved Staff Comments		13
Item 2.	Properties		14
Item 3.	Legal Proceedings		14
Item 4.	Mine Safety Disclosures		14
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		16
Item 6.	Selected Financial Data		18
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation		19
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		27
Item 8.	Financial Statements and Supplementary Data		28
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		51
Item 9A.	Controls and Procedures		51
Item 9B.	Other Information		51
PART III
Item 10.	Directors, Executive Officers of the Registrant and Corporate Governance Matters		52
Item 11.	Executive Compensation		52
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters		52
Item 13.	Certain Relationships and Related Transactions, and Director Independence		53
Item 14.	Principal Accounting Fees and Services		53
PART IV
Item 15.	Exhibits and Financial Statement Schedules		54

Forward Looking Information

Some of the statements under the sections entitled “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Risk Factors,” and elsewhere in this Annual Report on Form 10-K are forward-looking statements, which reflect Cost Plus, Inc.’s current beliefs and estimates with respect to future events and the Company’s future financial performance, business, operations, strategy and competitive position. In some cases, you can identify forward-looking statements by terminology such as “anticipates,” “appears,” “believes,” “continue,” “could,” “estimates,” “expects,” “feels,” “goal,” “hope,” “intends,” “may,” “our future success depends,” “plans,” “potential,” “predicts,” “projects,” “reasonably,” “seek to continue,” “should,” “thinks,” “will” or the negative of these terms or other comparable terminology. These statements include statements regarding future net sales through the Company’s direct-to-consumer website. These statements are only predictions. Actual events or results may differ materially. In addition, historical information should not be considered an indicator of future performance. Factors that could cause or contribute to these differences include, but are not limited to, the risks discussed in Part I, Item 1A of this Form 10-K under the caption “Risk Factors.” These factors may cause our actual results to differ materially from any forward-looking statements.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Moreover, the Company is under no duty to update any of the forward-looking statements after the date of this Form 10-K to conform these statements to actual results. These forward-looking statements are made in reliance upon the safe harbor provision of The Private Securities Litigation Reform Act of 1995.

PART I

ITEM 1. BUSINESS

The Company

Cost Plus, Inc. and its subsidiaries (“Cost Plus World Market,” or “the Company”) is a leading specialty retailer of casual home furnishings and entertaining products in the United States. Cost Plus, Inc. was organized as a California corporation in November 1946 and opened its first retail store in 1958 in San Francisco, California. As of January 28, 2012, the Company operated 258 stores under the names “World Market,” “Cost Plus World Market,” “Cost Plus Imports” and “World Market Stores” in 30 states. Cost Plus World Market’s business strategy is to differentiate itself by offering a large and ever-changing selection of unique products, many of which are imported, at value prices in an exciting shopping environment. Many of Cost Plus World Market’s products are proprietary or private label, often incorporating the Company’s own designs, “World Market” brand name, quality standards and specifications and typically are not available at department stores or other specialty retailers.

The Company’s stores are located predominantly in high traffic metropolitan, urban and suburban locales. During the fiscal year ended January 28, 2012, the Company closed five stores and relocated one store. All of the stores closed during fiscal 2011 are included in continuing operations, and four of the five store closures had no lease exit costs because their leases had expired.

The Company’s website address iswww.worldmarket.com. 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, Current Reports on Form 8-K, Definitive Proxy Statement and Section 16 filings and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the SEC. This website address is intended to be an inactive, textual reference only. None of the material on this website is part of this Annual Report on Form 10-K.

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Merchandising

The Company’s merchandising strategy is to offer customers a broad selection of distinctive products related to the themes of home decorating, home entertaining, and gift giving, overlaid with its core competency in seasonal merchandise.

Products. The Company believes its distinctive and unique merchandise and shopping environment differentiates it from other retailers. A significant portion of the Company’s products are made abroad in over 50 countries, and many of these goods are handcrafted by local artisans. Many of the Company’s products are proprietary or private label. The “World Market” brand name or other brand names exclusive to the Company often incorporate the Company’s own designs, and are typically not available at department stores or other specialty retailers. In addition to strengthening the store’s product offering, proprietary and private label goods typically offer higher gross margins and stronger consumer values than branded goods. The Company classifies its product offering into the home furnishings and consumables product lines.

Within the home furnishings product line, the offerings include home decorating items such as furniture, rugs, pillows, bath linens, lighting, window coverings, frames, and baskets. The Company’s furniture products include ready-to-assemble living and dining room pieces; sofas, chairs; unique handcrafted case goods and occasional pieces; as well as outdoor furniture made from a variety of materials. The Company also sells a number of tabletop and kitchen products including glassware, ceramics, textiles and cooking utensils. Kitchen products include an assortment of products organized around a variety of themes such as baking, food preparation, barbecuing and international dining. The home furnishings product line also includes a number of gift and decorative accessories, including artisan gifts; candles; framed art and wall décor; a unique assortment of jewelry, fashion accessories and personal care items; as well as holiday and other seasonal items. Because many of the gift, jewelry and artisan gift items come from around the world, they contribute to the exotic atmosphere of the stores. 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 season (the “Holiday” season).

Within the consumables product line, the Company offers its customers a wide selection of gourmet foods and beverages, including wine, microbrewed and imported beer, coffee, tea, and mineral water. The wine assortment offers a number of moderately priced premium wines, including a variety of well recognized labels, as well as wines not readily available at neighborhood wine or grocery stores that have been privately bottled and imported from around the world. State regulations may limit or restrict the Company’s ability to sell alcoholic beverages. Consumable products, particularly beverages, generally have lower margins compared to the Company’s average. Gourmet foods include packaged products from around the world, seasonal items that relate to “traditional” holidays and customs, private label products and goods exclusive to the Company. Packaged snacks, candy and pasta are often displayed in open barrels and crates. Food items typically have a shelf life of six months or longer.

The Company accounts for its operations as one operating segment. The Company classifies its sales into the home furnishings and consumables product lines. Sales in each category as a percentage of total net sales for the prior three fiscal years were as follows:

	Fiscal Year Ended
	January 28, 2012			January 29, 2011			January 30, 2010
Home Furnishings		61	%		60	%		59	%
Consumables		39	%		40	%		41	%

The Company replaces or updates many of the items in its merchandise assortment on a regular basis in order to encourage repeat shopping and to promote a sense of discovery. The Company typically marks down retail prices of items that do not meet its turnover expectations.

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Store Format and Presentation. The Company’s stores are designed to evoke the feeling of a “world marketplace” through colorful and creative visual displays and merchandise presentations, including goods in open barrels and crates, groupings of related products in distinct “shops” within the store and in-store activities such as food and coffee tastings and wine tasting in some states. The Company believes that its “world marketplace” effect provides customers with a fun shopping experience and encourages browsing throughout the store.

The average selling space of a Cost Plus World Market store is approximately 15,700 square feet, which allows flexibility for merchandise displays, product adjacencies and directed traffic patterns. Complementary products are positioned in proximity to one another and cross merchandising themes are used in merchandise displays to tie different product offerings together. The floor plan allows the customer to see virtually all of the different product areas in a Cost Plus World Market store from the store center where each quadrant, with bulk displays and end caps highlighting everyday value priced items, lead the customer into different product areas. The Company has a seasonal shop, usually located in the heart of the store, which features seasonal products and themes, such as the holiday shop, harvest and outdoor. Store signage, including permanent as well as promotional signs, is developed by the Company’s in-house graphic design department. End caps, bulk stacks and freestanding displays are changed frequently. Approximately 2,900 square feet of back office and stock space are included in the total square footage at a store, which averages about 18,600 square feet per store.

The Cost Plus World Market store format is also designed to reinforce the Company’s value image through exposed ceilings, concrete floors, simple wooden fixtures and open or bulk presentations of merchandise. The Company displays most of its inventory on the selling floor and makes effective use of vertical space, such as a display of chairs arranged on a wall and rugs hanging vertically from fixtures.

The Company believes that its customers usually visit a Cost Plus World Market store as a destination with a specific purchase in mind. The Company makes use of frequent receipts of products, seasonal themes and products, and consumable products to encourage frequent return visits by its customers. The Company also believes that once in the store, its customers often spend additional time shopping and browsing, which results in customers purchasing more items than they originally intended.

Pricing. Cost Plus World Market offers quality products at competitive prices. The Company complements its everyday low price strategy with selected product promotions and opportunistic buys, enabling the Company to pass on additional savings to the customer. The Company routinely shops a variety of retailers to ensure that its products are competitively priced.

Planning and Buying. Cost Plus World Market effectively manages a large number of products by utilizing centralized merchandise planning, tracking and replenishment systems. The Company regularly monitors merchandise activity at the item level through its management information systems to identify and respond to product trends. The Company maintains its own central buying staff that are responsible for establishing the assortment of inventory within its merchandise classifications each season, including integrating current trends or themes identified by the Company into its different product categories. The Company attempts to moderate the risk associated with merchandise purchasing by testing selected new products in a limited number of stores. The Company’s long-standing relationships with overseas suppliers, its international buying agency network and its knowledge of the import process facilitate the planning and buying process. The buyers work closely with suppliers to develop unique products that will meet customers’ expectations for quality and value.

Direct-to-Consumer (“e-commerce”)

The Company operates an e-commerce website atwww.worldmarket.comwhich makes up its direct-to-consumer channel, and is an increasingly important part of the Company’s business, representing approximately 3% of net sales in fiscal 2011, compared to 2% of net sales in fiscal 2010. The direct-to-consumer business is a strategic growth priority of the Company and the Company expects that direct-to-consumer net sales

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will continue to grow. The Company offers customers a rich online shopping experience, a robust pre-shopping tool with detailed product information and another branded customer channel. The Company believes that the website is convenient for its core customer and enhances the image of its brand. The website also makes the Company’s products more accessible and builds brand awareness in additional and new markets than the retail store channel alone.

Marketing and Advertising

The Company’s marketing program leverages an integrated, multimedia approach to engage the customer and drive traffic. During fiscal 2011, the Company continued to successfully drive acquisition and retention with traditional and new media vehicles that showcased the brand, product assortment and promotional activities. The Company continues to test and expand its marketing programs, utilizing a myriad of tools including electronic media, public relations, partnerships and social media.

In fiscal 2011, the Company continued its efforts with the World Market Explorer customer loyalty program, increasing membership by 40% versus the prior year. This program allows the Company to recognize and reward its best customers. Key program elements are designed to increase shopping frequency, increase average ticket size and engage customers with the brand.

Product Sourcing and Distribution

The Company purchases most of its inventory centrally, which allows the Company to take advantage of volume purchase discounts and improve controls over inventory and product mix. The Company purchases its merchandise from approximately 2,000 suppliers; the largest of which represented approximately 3% of total purchases in the fiscal year ended January 28, 2012. A significant portion of Cost Plus World Market’s products are manufactured abroad in over 50 countries in Europe, North and South America, Asia, Africa and Australia. The Company has established a well developed overseas sourcing network and enjoys long standing relationships with many of its vendors. As is customary in the industry, the Company does not have long-term contracts with its suppliers. The Company’s buyers often work with suppliers to produce unique products exclusive to Cost Plus World Market. The Company believes that, although there could be delays in changing suppliers, alternate sources of merchandise for core product categories are available at comparable prices. Cost Plus World Market typically purchases overseas products on either a free-on-board or ex-works basis, and the Company’s insurance on such goods commences at the time it takes ownership. The Company also purchases a number of domestic products, especially in the gourmet food and beverage area. Due to state regulations, wine and beer are purchased from local distributors, with purchasing primarily directed by the corporate buying office.

The Company currently services its stores from its distribution centers located in Stockton, California and Windsor, Virginia. Domestically sourced merchandise is usually delivered to the distribution centers by common carrier or by Company trucks.

Information Systems

Each of the Company’s stores is linked to the Cost Plus World Market headquarters in Oakland, California through an IBM 4690 Point-of-Sale (“POS”) system and a Multiprotocol Label Switching (“MPLS”) data network that interfaces with an IBM AS/400 computer. The Company’s information systems keep records, which are updated daily, of every merchandise item sold in each store, as well as financial, sales and inventory information. The POS system also has scanning, price look-up and on-line credit/debit card approval capabilities, all of which improve transaction accuracy, speed checkout time and increase overall store efficiency. The Company continually upgrades its in-store information systems to improve information flow to store management and enhance other in-store administration capabilities. Over the past few years, a customer loyalty system, World Market Explorer, was implemented to drive shopping frequency and increase average ticket size, and a returns management system was implemented to minimize fraudulent returns and improve speed of service at the POS.

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Purchasing operations are facilitated by the use of merchandise information systems that allow the Company to analyze product sell-through and assist the buyers in making merchandise decisions. The Company’s Central Replenishment system includes stock keeping unit (“SKU”) and store-specific “model stock” logic that enables the Company to maintain adequate stock levels on basic goods in each location. The Company also utilizes an Assortment Planning application to improve SKU level planning and management.

The Company uses several other information systems to manage and control its operations and finances. These information systems are designed to ensure the integrity of the Company’s inventory, support pricing decisions, process payroll, pay bills, control cash, maintain fixed assets and track promotions throughout all of the Company’s stores. The Company’s Warehouse Management system enables its distribution centers to receive, locate, pick and ship inventory to stores. The Company also utilizes a distribution center labor management system to improve distribution center labor planning, tracking and reporting.

Additional systems enable the Company to produce the periodic financial reports necessary for developing budgets and monitoring individual store and consolidated Company performance.

Competition

The markets served by Cost Plus World Market are highly competitive. The Company competes against a diverse group of retailers ranging from specialty stores to department stores and discounters. The Company’s product offerings compete with such retailers as Bed Bath & Beyond, Crate & Barrel, Ethan Allen Interiors, Haverty Furniture, Jo-Ann Stores, Kirkland’s, Michaels Stores, Pier 1 Imports, Pottery Barn, Target, Trader Joe’s, Tuesday Morning, and Williams-Sonoma. Most specialty retailers tend to have higher prices and a narrower assortment of products and department stores typically have higher prices than Cost Plus World Market for similar merchandise. Discounters may have lower prices than Cost Plus World Market, but the product assortment is generally more limited. The Company competes with these and other retailers for customers principally on the basis of price, assortment of products, brand name recognition, suitable retail locations and qualified management personnel.

Employees

As of January 28, 2012, the Company had 1,941 full-time and 4,186 part-time employees. Of these, 5,467 were employed in the Company’s stores and 660 were employed in the distribution centers and corporate office. The Company regularly supplements its work force with temporary staff, especially in the fourth fiscal quarter of each year to service increased customer traffic during the peak Holiday season. Employees in 11 stores in Northern California are covered by a collective bargaining agreement that expires on May 31, 2012. The company is currently re-negotiating the current collective bargaining agreement and expects to have a new contract in place before the current contract expires. The Company believes that it enjoys good relationships with its employees.

Trademarks

The Company regards its trademarks and service marks as having significant value and as being important to its marketing efforts. The Company has registered its “Asian Passage,” “Cab-u-lous,” “Castello Del Lago,” “Cost Plus,” “Cost Plus World Market,” “Crossroads,” “Electric Reindeer,” “Marche du Monde with logo,” “Marche du Monde,” “Market Classics,” “Mercado Del Mundo,” “One World. One Store,” “Pomona,” “Soiree,” “The Big Sipper,” “There with logo,” “World Grill,” “World Market,” “World Market Explorer,” “World Market Pairings” and “Zinfatuation” marks with the United States Patent and Trademark Office on the Principal register. In Canada, the Company has registered its “Cost Plus,” “Cost Plus World Market” and “World Market” marks. In the European Union, the Company has registered its “World Market” logo mark. The Company’s policy is to pursue prompt and broad registration of its marks and to vigorously oppose infringement of its marks.

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Geographic Information

During the last three years, substantially all of our revenue was generated within the United States, and substantially all of our long-lived assets were located within the United States.

ITEM 1A. RISK FACTORS

The following information describes certain significant risks and uncertainties inherent in our business. You should carefully consider these risks and uncertainties, together with the other information contained in this Annual Report on Form 10-K and in the Company’s other public filings. If any of such risks and uncertainties materialize, the Company’s business, financial condition or operating results could differ materially from the plans, projections and other forward-looking statements included in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report and in the Company’s other public filings. In addition, if any of the following risks and uncertainties, or if any other disclosed risks and uncertainties, actually occurs, the Company’s business, financial condition or operating results could be harmed substantially, which could cause the market price of our stock to decline, perhaps significantly.

We have a history of negative cash flows and losses in recent years.

Prior to achieving net income in fiscal 2011 and fiscal 2010, we incurred net losses in each annual period since fiscal 2006. As of January 28, 2012, we had an accumulated deficit of $78.1 million. For fiscal 2009, we did not generate positive cash flows from operating activities. There can be no assurance that our business will continue to be profitable or will generate sufficient cash to fund operations in the future or that additional losses and negative cash flows from operations will not be incurred, particularly on a quarterly basis, which could have a material adverse effect on our financial condition. We are dependent upon our asset-based credit facility to fund operations and seasonal inventory purchases throughout the year. Access to our asset-based credit facility is dependent upon meeting our debt covenants and not exceeding the borrowing limit of the asset-based credit facility. There can be no assurance that we will achieve or sustain positive cash flows, particularly on a quarterly basis, from operations or profitability. If we are unable to maintain adequate liquidity, it could have a material adverse affect on our financial condition and future operations may need to be scaled back or discontinued. However, based on our current business plan and revenue projections, we believe that our existing cash balance, our anticipated cash flows from operations and our available asset-based credit facility will be sufficient to meet our working capital and operating resource expenditure requirements for the next 12 months and the foreseeable future.

An overall decline in the health of the global economic environment and its impact on consumer confidence and spending could adversely impact the Company’s results of operations.

The global economic environment deteriorated substantially in recent years with declining values in real estate, reduced lending by banks, solvency concerns of major financial institutions, increased unemployment levels and significant declines and volatility in the global financial markets, which negatively impacted the level of consumer spending for discretionary items. If the economy deteriorates or slides back into a recession, there may be a negative impact on the Company’s financial results.

We may incur significant indebtedness in the future.

We may incur substantial debt in the future. A significant portion of our future cash flow from operating activities is likely to remain dedicated to the payment of interest and the repayment of principal on our future indebtedness. There is no guarantee that we will be able to meet our debt service obligations. If we are unable to generate sufficient cash flow or obtain funds for required payments, or if we fail to comply with our debt covenants, we would be in default and the lenders would have the right to accelerate full payment of the loans. In

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such event, we might not have sufficient cash resources to repay the lenders and we might not be able to refinance our debt on terms acceptable to us, or at all. Our future indebtedness could limit our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions or other purposes in the future, as needed; to plan for, or react to, changes in our business and competition; and to react in the event of an economic downturn.

Our lender has liens on substantially all of our assets and could foreclose in the event that we default under our credit facility.

Under the terms of our asset-based credit facility, our lender has a first priority lien on substantially all of our assets, including our cash and inventory balances. If we default under the asset-based credit facility, our lender would be entitled to, among other things, foreclose on our assets in order to satisfy our obligations under the credit facility.

If we are unable to positively differentiate ourselves from other retailers, our results of operations could be adversely affected.

The retail business is highly competitive. In the past, we have been able to compete successfully by differentiating our shopping experience by creating an attractive value proposition through a careful combination of price, merchandise assortment, convenience, guest service and marketing efforts. We compete against a diverse group of retailers ranging from specialty stores to department stores and discounters. Our product offerings compete with such retailers as Bed Bath & Beyond, Crate & Barrel, Ethan Allen Interiors, Haverty Furniture, Jo-Ann Stores, Kirkland’s, Michaels Stores, Pier 1 Imports, Pottery Barn, Target, Trader Joe’s, Tuesday Morning, and Williams-Sonoma. We compete with these and other retailers for customers, suitable retail locations and qualified management personnel. Some of our competitors have greater resources, more customers, and greater brand recognition. They may secure better terms from vendors, adopt more aggressive pricing, and devote more resources to technology, distribution, and marketing. Competitive pressures or other factors could cause us to lose market share, which may require us to lower prices, increase marketing and advertising expenditures, or increase the use of discounting or promotional campaigns, each of which would adversely affect our margins and could result in a decrease in our operating results and profitability.

Our business is highly seasonal, and our operating results fluctuate significantly from quarter to quarter.

Our business is highly seasonal, reflecting the general pattern associated with the retail industry of peak sales and earnings during the Holiday season. Due to the importance of the Holiday selling season, the fourth quarter of each fiscal year has historically contributed, and we expect will continue to contribute, a large percentage of our net sales and substantially all of our net income, if any, for the entire fiscal year. Any factors that have a negative effect on our business during the Holiday selling season in any year, including unfavorable economic conditions, would materially and adversely affect our financial condition and results of operations. We generally experience lower sales and earnings during the first three quarters and, as is typical in the retail industry, may incur losses in these quarters. The results of our operations for these interim periods are not necessarily indicative of the results for our full fiscal year.

We also must make decisions regarding merchandise well in advance of the season in which it will be sold. If the demand for our merchandise is significantly different than we have projected, it could harm our business and operating results, either as a result of lost sales due to insufficient inventory or lower gross margin due to the need to mark down excess inventory.

Our quarterly operating results may also fluctuate based on the factors set forth in this Risk Factors section, as well as such factors as:

• delays in the flow of merchandise to our stores;

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• the amount of sales contributed by new and existing stores;

• the mix of products sold;

• the timing and level of markdowns;

• store closings or relocations;

• competitive factors;

• changes in our operating expenses;

• changes in fuel and other shipping costs;

• general economic conditions;

• foreign exchange rates;

• labor market fluctuations;

• the impact of terrorist activities;

• our ability to acquire merchandise and manage inventory levels;

• our ability to retain and increase sales to existing customers, attract new customers, and satisfy our customers’ demands;

• changes in accounting rules and regulations;

• natural disasters; and

• unseasonable weather conditions.

These fluctuations may also cause a decline in the market price of our common stock.

Our success depends to a significant extent upon the overall level of consumer spending.

As a retail business, our success depends to a significant extent upon the overall level of consumer spending. Among the factors that affect consumer spending are the general state of the economy, credit and financial markets, employment and salary levels, the level of consumer debt, prevailing interest rates and consumer confidence in future economic conditions. A substantial number of our stores are located in the western United States, especially in California. Lower levels of consumer spending in this region could have a material adverse affect on our financial condition and results of operations. Reduced consumer confidence and spending may result in reduced demand for our merchandise, may limit our ability to increase prices and may require us to incur higher selling and promotional expenses, which in turn would harm our business and operating results.

If we fail to protect the security of personal information about our customers, we could be subject to costly government and industry enforcement actions or private litigation and our reputation could suffer.

The nature of our business involves the receipt and storage of personal information about our customers. If we experience a data security breach, or are perceived as violating regulations relating to personal information and privacy, we could be exposed to government and industry enforcement actions and private litigation. In addition, our customers could lose confidence in our ability to protect their personal information, which could cause them to discontinue usage of our credit card products, or stop shopping at our stores altogether. Such events could lead to lost future sales and adversely affect our results of operations. We are currently involved in litigation regarding our use of personal information (zip codes), the disposition of which is not expected to have a material effect on our financial position or results of operations. Please refer to the risk factor below entitled “Lawsuits and other claims against our Company may adversely affect our operating results.”

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The occurrence or the threat of international conflicts or terrorist activities could harm our business and result in business interruptions.

A significant portion of the merchandise that we sell is purchased in other countries and must be shipped to the United States, transported from the port of entry to our distribution centers in California or Virginia and distributed to our stores from the distribution centers. The precise timing and coordination of these activities is crucial to our business. The occurrence or threat of international conflicts or terrorist activities and the responses to those developments, for example, the temporary shutdown of a port that we use, could have a significant impact upon our business, our personnel and facilities, our customers and suppliers, the retail and financial markets and general economic conditions.

Our business and operating results are sensitive to changes in energy and transportation costs.

We incur significant costs for the transportation of goods from foreign ports to our distribution centers and stores and for utility services in our stores, distribution centers and corporate offices. We continually negotiate pricing for certain transportation contracts and, in a period of volatile fuel costs such as we have recently experienced, we expect that our vendors for these services will increase their rates to compensate for any possible increases in energy costs. We may not be able to pass a portion of these increased costs on to our customers and remain competitively priced.

Our operating results will be harmed if we are unable to meet our gross margin and comparable store sales expectations.

Our results depend, in part, on our ability to continue to improve our gross margin and improve sales at our existing stores. Our gross margin increased from 26.4% in fiscal 2009 to 31.7% in fiscal 2010 to 32.1% in fiscal 2011. Our comparable store sales, which are defined as sales by stores that have completed 14 full fiscal months of sales, fluctuate from year to year. In fiscal 2011, comparable store sales increased by 5.4% from fiscal 2010, and fiscal 2010 sales increased by 7.2% from fiscal 2009. Various factors affect both gross margin and comparable store sales, including:

• the general retail sales environment,

• our ability to source and distribute products efficiently,

• changes in our merchandise mix,

• competition,

• current economic conditions,

• the timing of release of new merchandise and promotional events,

• the success of marketing programs, and

• weather conditions.

These factors and others may cause our gross margin and comparable store sales to differ significantly from prior periods and from expectations. If we fail to meet the gross margin and comparable store sales expectations of investors and security analysts in one or more future periods, the price of our common stock could decline.

The Company’s success depends, in part, on its ability to operate in desirable locations at reasonable rental rates and to close underperforming stores at or before the conclusion of their lease terms.

The profitability of the business is dependent on operating the current store base at a reasonable profit, opening and operating new stores at a reasonable profit, and identifying and closing underperforming stores. For a majority of the Company’s current store base, a large portion of a stores’ operating expense is the cost

9

associated with leasing the location. Management actively monitors individual store performance and attempts to negotiate rent reductions to ensure stores can remain profitable or have the ability to rebound to a profitable state. Current locations may not continue to be desirable as demographics change, and the Company may choose to close an underperforming store before its lease expires and incur lease termination costs associated with that closing. The Company cannot give assurance that opening new stores or an increase in closings will result in greater profits.

We face a number of risks because we import much of our merchandise.

We import a significant amount of our merchandise from over 50 countries and numerous suppliers. We have no long-term contracts with our suppliers but instead rely on long-term relationships that we have established with many of these suppliers. Our future success will depend to a significant extent on our ability to maintain our relationships with our suppliers or to develop new ones. As an importer, our business is subject to the risks generally associated with doing business abroad such as the following:

• foreign governmental regulations,

• economic disruptions,

• strikes,

• delays in shipments,

• freight cost increases,

• changes in weather or natural disasters,

• changes in political or economic conditions in countries from which we purchase products, and

• the effect of trade regulation by the United States, including quotas, duties and taxes and other charges or restrictions on imported merchandise.

If these factors or others made the conduct of business in particular countries undesirable or impractical or if additional quotas, duties, taxes or other charges or restrictions were imposed by the United States on the importation of our products, our business and operating results would be harmed.

Interruption of the supply chain and/or ability to obtain products from suppliers.

The products we sell are procured from a wide variety of domestic and foreign suppliers and are distributed to our stores through distribution facilities in Stockton, California and Windsor, Virginia, as well as direct store delivery. Any significant interruption in our ability to source the products and the efficiency of distributing such products to our stores would harm our business and operating results.

We may not be able to forecast customer preferences accurately in our merchandise selections.

Our success depends in part on our ability to anticipate the tastes of our customers and to provide merchandise that appeals to their preferences. Our strategy requires our merchandising staff to introduce products from around the world that meet current customer preferences and that are affordable, distinctive in quality and design and that are not widely available from other retailers. Many of our products require long order lead times. In addition, a large percentage of our merchandise changes regularly. Our failure to anticipate, identify or react appropriately to changes in consumer trends could cause excess inventories and higher markdowns or a shortage of products and could harm our business and operating results.

Failure to successfully manage and execute the Company’s marketing initiatives could have a negative impact on the business.

The success and growth of the Company is partially dependent on generating customer traffic in order to gain sales momentum in its stores. Successful marketing efforts require the ability to reach customers through

10

their desired mode of communication utilizing various media outlets. Some media placement decisions are generally made months in advance of the scheduled release date although new electronic and online media tools provide for some short-term flexibility. The Company’s inability to accurately predict its consumers’ preferences, to utilize the desired mode of communication, or to ensure availability of advertised products may negatively impact the business and operating results.

If we are unable to effectively manage our direct-to-consumer business, our reputation and operating results may be harmed.

Direct-to-consumer has been a growing business over the last several years and represented approximately 3% of net sales in fiscal 2011 and 2% of net sales in fiscal 2010. The success of our direct-to-consumer business depends, in part, on factors over which we have limited control. We must successfully respond to changing consumer preferences and buying trends relating to direct-to-consumer usage. We are also vulnerable to certain additional risks and uncertainties associated with our direct-to-consumer website, including: changes in required technology interfaces; website downtime and other technical failures; costs and technical issues as we upgrade our website software; computer viruses; changes in applicable federal and state regulations; security breaches; and consumer privacy concerns. In addition, we must keep up to date with competitive technology trends, including the use of improved technology, creative user interfaces and other Internet marketing tools such as paid search, which may increase our costs and which may not succeed in increasing sales or attracting customers. Our failure to successfully respond to these risks and uncertainties might adversely affect the sales in our direct-to-consumer business, as well as damage our reputation and brand.

We rely on various key management personnel to ensure our success.

Our success will continue to depend on our key management personnel. The loss of the services of one or more of these executive officers or other key employees could harm our business and operating results. We do not maintain any key man life insurance policies.

We are subject to laws and regulatory requirements in many jurisdictions. Changes in these laws and requirements may result in additional costs, including the costs of compliance as well as potential penalties for non-compliance.

We are subject to laws and regulatory requirements in many jurisdictions. Developments in these areas, in addition to possible government penalties and litigation in the event of deemed noncompliance, could materially and adversely affect our results of operations.

Our common stock has been and may be subject to substantial price and volume fluctuations.

The market price of our common stock is affected by factors such as fluctuations in our operating results, a downturn in the retail industry, changes in interest rates, changes in financial estimates by us or securities analysts and recommendations by securities analysts regarding our Company, other retail companies or the retail industry in general, general market and economic conditions, as well as other factors set forth in this Risk Factors section. In addition, the stock market can experience price and volume fluctuations that are unrelated to the operating performance of particular companies.

Impact of natural disasters.

The occurrence of one or more natural disasters, including earthquakes (particularly in California where our Stockton distribution center is located and approximately 28% of our sales were generated in fiscal 2011) could result in the disruption in the supply of our products and distribution of products to our stores, damage to and the temporary closure of one or more stores and interruption in our labor staffing. These, and other potential outcomes of a natural disaster, could materially and adversely affect our results of operations.

11

We may be subject to significant liability should the consumption of any of our products cause injury, illness or death.

Our business is subject to product recalls in the event of contamination, product tampering, mislabeling or damage to our products. We cannot assure you that product-liability claims will not be asserted against us or that we will not be obligated to recall our products in the future. A product-liability judgment against us or a product recall could have a material adverse effect on our business, financial condition or results of operations.

Our business is subject to risks associated with fluctuations in the values of foreign currencies against the United States dollar.

We have significant purchase obligations with suppliers outside of the United States. During fiscal 2011, approximately 6% of these purchases were settled in currencies other than the United States dollar. Fluctuations in the rates of exchange between the dollar and other currencies could harm our operating results.

Provisions in our charter documents could prevent or delay a change in control of our Company and may reduce the market price of our common stock.

Certain provisions of our articles of incorporation and bylaws may have the effect of making it more difficult for a third party to acquire, or may discourage a third party from attempting to acquire, control of the Company. Such provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock. Certain of these provisions allow us to issue preferred stock without any vote or further action by the shareholders. In addition, the right to cumulate votes in the election of directors has been eliminated. These provisions may make it more difficult for shareholders to take certain corporate actions and could have the effect of delaying or preventing a change in control of the Company.

Lawsuits and other claims against our Company may adversely affect our operating results.

We are involved in litigation, claims and assessments incidental to our business, the disposition of which is not expected to have a material effect on our financial position or results of operations. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in our assumptions related to these matters. While outcomes of such actions vary, any claims or regulatory actions initiated by or against us, whether successful or not, could result in expensive costs of defense, costly damage awards, injunctive relief, increased costs of business, fines or orders to change certain business practices, significant dedication of management time, diversion of significant operational resources, or otherwise harm our business. The Company’s policy is to accrue our best estimate of the probable cost for the resolution of claims. When appropriate, such estimates are developed in consultation with outside counsel handling the matters and are based upon a combination of litigation and settlement strategies. To the extent additional information arises or our strategies change, it is possible that our best estimate of our probable liability may change.

Changes to estimates related to the Company’s property and equipment, or operating results that are lower than its current estimates at certain store locations, may cause the Company to incur impairment charges on certain long-lived assets.

The Company makes certain estimates and projections with regards to individual store operations in connection with its impairment analyses for long-lived assets. An impairment charge is required when the carrying value of the asset exceeds the estimated fair value or undiscounted future cash flows of the asset. The projection of future cash flows used in this analysis requires the use of judgment and a number of estimates and projections of future operating results. If actual results differ from the Company’s estimates, additional charges for asset impairments may be required in the future. If impairment charges are significant, the Company’s results of operations could be adversely affected.

12

If we fail to maintain an effective system of internal control, we may not be able to accurately report our financial results. As a result, current and potential shareholders could lose confidence in our financial reporting, which could harm our business and the market price of our stock.

Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States. Our management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company will have been detected. Effective internal control is necessary for us to provide reliable financial reports. Failure on our part to have effective internal financial and accounting controls could cause our financial reporting to be unreliable, could have a material adverse effect on our business, operating results, and financial condition, and could adversely affect the trading price of our common stock.

Disruptions to our information systems, or our failure to adequately support, maintain and upgrade these systems, could negatively impact our results of operations.

We depend on a variety of information systems for the efficient functioning of our business. In particular, we rely on our information systems to effectively process transactions, manage inventory, purchase and sell goods on a timely basis and maintain cost-efficient operations. Disruptions to our information systems, or our failure to adequately support, maintain and upgrade these systems could have a material adverse impact on our results of operations.

Changes in our effective income tax rate could affect our results of operations.

Our effective income tax rate is influenced by a number of factors. Changes in the tax laws, the interpretation of existing laws, the ability to apply our federal net operating loss carry forward against future taxable income or our failure to sustain our reporting positions on examination could adversely affect our effective tax rate. Further, our effective tax rate in a given financial statement period may be materially impacted by changes in the mix and level of earnings or by changes to existing accounting rules or regulations and could have a material adverse effect on our results of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

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ITEM 2. PROPERTIES

As of April 10, 2012, the Company operated 259 stores in 30 states. The average selling space of a Cost Plus World Market store was approximately 15,700 square feet. The total average square footage of a Cost Plus World Market store was approximately 18,600 square feet, including a back stock room and office space. The table below summarizes the distribution of stores by state:

Alabama	5		Idaho	2	Michigan	5	South Carolina	8
Arizona	15		Illinois	13	Missouri	5	South Dakota	1
California	69		Indiana	1	Montana	2	Tennessee	5
(Northern California	30	)	Iowa	1	Nevada	5	Texas	30
(Southern California	39	)	Kansas	2	New Mexico	3	Utah	2
Colorado	7		Kentucky	1	North Carolina	10	Virginia	9
Florida	13		Louisiana	6	Ohio	9	Washington	11
Georgia	6		Maryland	2	Oregon	7	Wisconsin	4

The Company leases land and buildings for 254 stores (of which nine are capital leases) and leases land and owns the buildings for five stores. The Company currently leases its executive headquarters in Oakland, California pursuant to a lease that expires in October 2013 and includes an option to renew for an additional five year term.

The Company currently leases a distribution center of approximately 1,000,000 square feet in Stockton, California on 55 acres of land. The distribution center has two separate but adjacent facilities, one of which is used primarily for furniture distribution and the other is primarily used for general merchandise distribution. The California distribution center is the Company’s primary distribution center for its stores in the western United States. The Company owned the property prior to leasing it. The initial term of the building lease expires April 30, 2026. The Company has two options to renew for five year terms each and one option to renew for a term of four years. Additionally, the Company has one time termination rights to terminate the leases on April 30, 2016 and July 31, 2017, respectively. The Company accounted for the sale and leaseback of the properties whereby the net book value of the assets and the lease obligations remain on the Company’s consolidated balance sheet.

The Company currently leases a distribution center of approximately 1,000,000 square feet in Windsor, Virginia on 82 acres of land. The Company owned the property prior to leasing it. The initial term of the lease expires December 21, 2026. The Company has the option to renew for four consecutive terms of five years each. Additionally, the Company has a one time termination right to terminate the lease on December 31, 2016. The Company accounted for the sale and leaseback of the property whereby the net book value of the asset and the lease obligations remain on the Company’s consolidated balance sheet.

The Company believes its current distribution facilities are adequate to meet its needs and will be able to accommodate future store growth.

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any pending legal proceeding other than claims and litigation that arise in the ordinary course of business. Based on currently available information, management does not believe that the ultimate outcome of any unresolved matters, individually or in the aggregate, is likely to have a material adverse effect on the Company’s financial position or results of operations. However, litigation is subject to inherent uncertainties, and management’s view of these matters may change in the future. Were an unfavorable outcome to occur, there exists the possibility of a material adverse impact on the Company’s financial position and results of operations for the period in which the unfavorable outcome occurs, which may extend into future periods.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

14

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company and their respective ages as of April 10, 2012 are as follows:

Name	Age		Position
Barry J. Feld		55	Chief Executive Officer, President and Director
Jane L. Baughman		45	Executive Vice President, Chief Financial Officer and Secretary
Jeffrey A. Turner		49	Executive Vice President, Operations and Chief Information Officer

Mr. Feld was appointed Chief Executive Officer and President of Cost Plus, Inc. in October 2005. From August 1999 until October 2005, Mr. Feld was President, Chief Executive Officer and Chairman of the Board of Directors of PCA International, Inc., the largest North American operator of portrait studios focused on serving the discount retail market. From November 1998 to June 1999, Mr. Feld was President and Chief Operating Officer of Vista Eyecare, Inc., a specialty eyecare retailer. He joined Vista Eyecare as a result of its acquisition of New West Eyeworks, Inc., where he had been serving as President and a director since May 1991 and as Chief Executive Officer and a Director since February 1994. From 1987 to May 1991, Mr. Feld was with Frame-n-Lens Optical, Inc., where he served as its president prior to joining New West. Prior to that, he served in various senior management positions at Pearle Health Services for 10 years and, for a number of years, he served as an acquisition and turnaround specialist for optical retail groups acquired by Pearle. PCA International filed for protection under Chapter 11 of the federal Bankruptcy Code in August 2006. Mr. Feld also serves on the Santa Clara University Advisory Board.

Ms. Baughman is the Executive Vice President and Chief Financial Officer for Cost Plus, Inc. She is responsible for all of the Company’s financial activities including: Finance, Accounting, Treasury, Risk Management, Tax and Real Estate, and has more than 20 years of retail experience. Ms. Baughman joined Cost Plus in February 1996 as Manager of Merchandise Planning and has been promoted into positions of increasing responsibility including: Director of Financial Planning & Analysis, VP of Finance, Treasurer, and SVP Financial Operations prior to her appointment as EVP and Chief Financial Officer in September 2007. Ms. Baughman has also served as the Company’s Corporate Secretary since August 2001. Prior to joining the Company, Ms. Baughman served in various financial positions for The Nature Company and The Gap, Inc., and worked in investment banking as a financial analyst for Dillon Read & Co., Inc.

Mr. Turner joined the Company in September 2007 as Senior Vice President and Chief Information Officer. Effective March 2010, Mr. Turner was promoted to the position of Executive Vice President of Operations and Chief Information Officer. As EVP of Operations and Chief Information Officer, Mr. Turner is responsible for store operations, international logistics and customs, distribution, domestic transportation, and information technology. Mr. Turner has more than 27 years of information technology experience, as well as 20 years of retail experience. Prior to joining the Company, Mr. Turner served as Senior Vice President and Chief Information Officer for Restoration Hardware from June 2004 to September 2007. Mr. Turner also held senior level information technology positions at Levi Strauss & Co. and Gap, Inc. from 1991 to 2004. He served as the Vice President, Global and North America Development at Levi Strauss & Co. from August 2001 to February 2004, and he served from September 1991 to July 2001 in a variety of roles at Gap, Inc. culminating in the position of Vice President, Global Store Technology. Mr. Turner began his career in management consulting with Arthur Andersen in July 1984.

There are no family relationships among any of our directors or executive officers.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

The Company’s common stock is currently traded on the Nasdaq Global Select Market under the symbol “CPWM.” The following table sets forth the high and low closing sales prices, for the periods indicated, as reported by the Nasdaq Global Select Market.

Fiscal Year Ended January 28, 2012

	Price Range
	High		Low
First Quarter		$11.41		$8.41
Second Quarter		11.13		8.55
Third Quarter		8.61		5.60
Fourth Quarter		13.52		7.11

Fiscal Year Ended January 29, 2011

	Price Range
	High		Low
First Quarter	$	5.64	$	1.13
Second Quarter		5.74		3.01
Third Quarter		5.28		3.05
Fourth Quarter		12.46		5.10

As of March 22, 2012, the Company had 44 shareholders of record, excluding shareholders whose stock is held by brokers and other institutions on behalf of the shareholders. The Company estimated it had approximately 5,300 beneficial shareholders as of that date.

Dividend Policy

As of January 28, 2012, the Company has paid no cash dividends on its common stock, and the Company has no current intentions to do so. Certain provisions of the Company’s loan agreements restrict the ability of the Company to pay dividends.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The Company has a stock repurchase program authorized by its Board of Directors to repurchase up to 1,074,500 shares of its common stock. No shares have been repurchased under the program since fiscal 2004. The program does not require the Company to repurchase any common stock and may be discontinued at any time.

Securities Authorized for Issuance Under Equity Compensation Plans

Information regarding the securities authorized for issuance under the Company’s equity compensation plans is incorporated by reference from our proxy statement to be filed for our 2012 Annual Meeting of Shareholders. See Item 12 of this Annual Report on Form 10-K.

16

PERFORMANCE GRAPH

The following graph shows a comparison of cumulative total return for our common stock, the Nasdaq Composite Index and the Nasdaq Retail Trade Index from January 31, 2007 through the fiscal year ended January 28, 2012. In preparing the graph it was assumed that: (i) $100 was invested on January 31, 2007 in our common stock at $10.30 per share (adjusted for stock splits), the Nasdaq Composite Index and the Nasdaq Retail Trade Index; and (ii) all dividends were reinvested.

Notwithstanding anything to the contrary set forth in any of our previous filings under the Securities Act of 1933, as amended or the Exchange Act that might incorporate future filings, in whole or in part, the following performance graph shall neither be incorporated by reference into any such filings nor be incorporated by reference into any future filings, except to the extent we specifically incorporate this information by reference.

* $100 invested on 1/31/07 in stock or index, including reinvestment of dividends. Fiscal year ending January 31.

	1/07		1/08		1/09		1/10		1/11		1/12
Cost Plus, Inc.		100.00		38.83		9.32		11.65		82.52		131.55
NASDAQ Composite		100.00		97.07		60.02		87.95		111.84		116.36
NASDAQ Retail Trade		100.00		108.17		73.39		123.33		163.38		190.39

17

ITEM 6. SELECTED FINANCIAL DATA

Five Year Summary of Selected Financial Data

(In thousands, except per share amounts and selected operating data)	Fiscal Year1
	2011			2010			2009			2008			2007
Statement of Operations Data:
Net sales	$	963,833		$	916,564		$	867,045		$	948,653		$	949,838
Cost of sales and occupancy		654,208			625,619			637,851			702,205			678,972
Gross profit		309,625			290,945			229,194			246,448			270,866
Selling, general and administrative expenses		277,411			270,853			270,852			313,679			303,161
Store closure (income)/costs		(41	)		3,173			5,799			—			—
Store preopening expenses		176			254			238			2,985			3,270
Income (loss) from continuing operations, before interest and taxes		32,079			16,665			(47,695	)		(70,216	)		(35,565	)
Net interest expense		12,814			11,115			11,206			12,840			11,613
Income (loss) from continuing operations before income taxes		19,265			5,550			(58,901	)		(83,056	)		(47,178	)
Income tax (benefit) expense		1,554			876			(12,738	)		758			34
Net income (loss) from continuing operations		17,711			4,674			(46,163	)		(83,814	)		(47,212	)
Loss from discontinued operations, net of income tax		(1,213	)		(1,816	)		(17,156	)		(18,854	)		(8,288	)
Net income (loss)	$	16,498		$	2,858		$	(63,319	)	$	(102,668	)	$	(55,500	)
Net income (loss) per share from continuing operations:
Basic	$	0.79		$	0.21		$	(2.09	)	$	(3.80	)	$	(2.14	)
Diluted	$	0.76		$	0.21		$	(2.09	)	$	(3.80	)	$	(2.14	)
Net loss per share from discontinued operations:
Basic	$	(0.05	)	$	(0.08	)	$	(0.78	)	$	(0.85	)	$	(0.37	)
Diluted	$	(0.05	)	$	(0.08	)	$	(0.78	)	$	(0.85	)	$	(0.37	)
Net income (loss) per share:
Basic	$	0.74		$	0.13		$	(2.87	)	$	(4.65	)	$	(2.51	)
Diluted	$	0.71		$	0.13		$	(2.87	)	$	(4.65	)	$	(2.51	)
Weighted-average shares outstanding—basic		22,263			22,087			22,087			22,087			22,086
Weighted-average shares outstanding—diluted		23,357			22,621			22,087			22,087			22,086
Selected Operating Data:
Percent of net sales:
Gross profit		32.1	%		31.7	%		26.4	%		26.0	%		28.5	%
Selling, general and administrative expenses		28.8	%		29.6	%		31.2	%		33.1	%		31.9	%
Income (loss) from continuing operations, before interest and taxes		3.3	%		1.8	%		(5.5	)%		(7.4	)%		(3.7	)%
Number of stores:
Opened during period		1			2			2			15			15
Closed during period		6			7			30			17			4
Open at end of period		258			263			268			296			298
Average sales per selling square foot2	$	230		$	218		$	201		$	222		$	223
Comparable store sales increase (decrease)3		5.4	%		7.2	%		(7.1	)%		(2.6	)%		(5.4	)%
Balance Sheet Data (at period end):
Working capital	$	94,366		$	69,978		$	101,097		$	128,773		$	161,129
Total assets		359,630			348,649			380,432			444,992			553,747
Long-term distribution center sale-leaseback obligations and long-term capital lease obligations		115,379			117,876			119,665			120,721			122,769
Total shareholders’ equity		98,429			78,365			74,043			136,209			237,519
Current ratio		1.76			1.55			1.91			2.11			2.03
Debt to equity ratio		118.9	%		185.1	%		229.5	%		118.4	%		60.2	%

1. The Company’s fiscal year end is the Saturday closest to the end of January. All fiscal years presented consisted of 52 weeks.

2. Calculated using net sales for stores open during the entire period divided by the selling square feet of such stores.

3. A store is included in comparable store sales the first day of the fiscal month beginning with the fourteenth full fiscal month of sales. In all years presented, comparable store sales were measured on a 52-week basis.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Information

The following discussion and analysis of results of operations, financial condition, liquidity and capital resources should be read in conjunction with the accompanying audited consolidated financial statements and notes thereto that are included elsewhere in this Annual Report on Form 10-K. The fiscal years ended January 28, 2012 (fiscal 2011), January 29, 2011 (fiscal 2010) and January 30, 2010 (fiscal 2009) all included 52 weeks. Unless otherwise indicated, information presented in the notes to the financial statements relates only to the Company’s continuing operations.

The discussion in this Annual Report on Form 10-K contains both historical information and forward-looking statements. A number of factors affect our operating results and could cause our actual future results to differ materially from any forward-looking statements discussed below. In some cases, you can identify forward-looking statements by terminology such as “anticipates,” “appears,” “believes,” “continue,” “could,” “estimates,” “expects,” “feels,” “goal,” “hope,” “intends,” “may,” “our future success depends,” “plans,” “potential,” “predicts,” “projects,” “reasonably,” “seek to continue,” “should,” “thinks,” “will” or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. In addition, historical information should not be considered an indicator of future performance. Factors that could cause or contribute to these differences include, but are not limited to, the risks discussed in Part I, Item 1A of this Form 10-K under the caption “Risk Factors.” These factors may cause our actual results to differ materially from any forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, we are under no duty to update any of the forward-looking statements after the date of this Form 10-K to conform these statements to actual results. These forward-looking statements are made in reliance upon the safe harbor provision of The Private Securities Litigation Reform Act of 1995.

Overview

Cost Plus, Inc. is a leading specialty retailer of casual home furnishings and entertaining products. As of January 28, 2012, the Company operated 258 stores in 30 states. The stores feature an ever-changing selection of casual home furnishings, housewares, gifts, decorative accessories, gourmet foods and beverages offered at competitive prices and imported from more than 50 countries. Many items are unique and exclusive to Cost Plus World Market. The value, breadth and continual refreshment of products invites customers to come back throughout a lifetime of changing home furnishings and entertaining needs.

Net sales for fiscal 2011 increased 5.2% to $963.8 million from $916.6 million for fiscal 2010, while comparable store sales for fiscal 2011 increased 5.4% compared to a 7.2% increase in fiscal 2010. Net income in fiscal 2011 was $16.5 million, or $0.71 per diluted share, versus net income in fiscal 2010 of $2.9 million, or $0.13 per diluted share, marking two consecutive years of profitability for the Company. The increase in profitability for fiscal 2011 is due to higher gross profit from increased sales, consistent merchandise margin, and leverage on occupancy costs and selling, general, and administrative (SG&A) expenses from higher sales.

As a result of paying off the asset-based credit facility, the Company ended fiscal 2011 with no outstanding borrowings and $9.6 million in letters of credit outstanding, compared to $25.4 million in outstanding borrowings and $10.8 million in letters of credit outstanding at the end of fiscal 2010.

The Company closed five stores and relocated one store during fiscal 2011 to end the year with 258 stores. All of the stores closed during fiscal 2011 are included in continuing operations and four of the five store closures had no lease exit costs because their leases had expired.

19

Fiscal 2011 Compared to Fiscal 2010

Net SalesNet sales consist almost entirely of retail sales, but also include direct-to-consumer sales, shipping revenue and other miscellaneous revenue. Net sales increased $47.3 million, or 5.2%, to $963.8 million in fiscal 2011 from $916.6 million in fiscal 2010. The increase in net sales was attributable to a 5.4% increase in comparable store sales compared to a 7.2% increase in fiscal 2010. Customer count for fiscal 2011 increased 4.0% and the average ticket increased 1.3% primarily due to strong performance in the furniture business. As of January 28, 2012, the calculation of comparable store sales included a base of 258 stores. A store is included as comparable at the beginning of the fourteenth full fiscal month of sales. As of January 28, 2012, the Company operated 258 stores compared to 263 stores as of January 29, 2011.

The Company classifies its sales into the home furnishings and consumables product lines. Home furnishings were 61% of sales in fiscal 2011 compared to 60% in fiscal 2010 and consumables were 39% of sales in fiscal 2011 compared to 40% in fiscal 2010.

Cost of Sales and OccupancyCost of sales and occupancy, which consists of the cost of inventory sold during the period, costs to acquire merchandise inventory, costs of freight and distribution, as well as certain facility costs, increased $28.6 million, or 4.6%, to $654.2 million in fiscal 2011 compared to $625.6 million in fiscal 2010. As a percentage of net sales, total cost of sales and occupancy decreased 40 basis points to 67.9% in fiscal 2011 from 68.3% in fiscal 2010. Occupancy as a percentage of net sales for fiscal 2011 decreased 70 basis points as a result of lower costs and the leveraging of the costs on higher comparable store sales. This decrease was offset by a 30 basis point increase in cost of sales as a percentage of net sales related to the clearance of seasonal outdoor merchandise in the first half of fiscal 2011.

Selling, General and Administrative (“SG&A”) ExpensesSG&A expenses increased $6.6 million, or 2.4%, to $277.4 million in fiscal 2011 compared to $270.9 million in fiscal 2010. As a percentage of net sales, SG&A expenses for fiscal 2011 decreased 80 basis points to 28.8% in fiscal 2011 from 29.6% in fiscal 2010. The decrease in SG&A expenses as a percentage of net sales was primarily due to increased leverage from higher sales.

Store Closure (Income)/CostsThe Company had store closure income from continuing operations of $41,000 for fiscal 2011 compared to costs of $3.2 million for fiscal 2010. The store closure income for fiscal 2011 was due to a payment received in the second quarter of fiscal 2011 from a landlord related to a favorable early lease termination, partially offset by the costs of closing the store and other lease exit cost adjustments. The Company closed five stores and relocated one store during fiscal 2011; all of the stores closed during fiscal 2011 are included in continuing operations and four of the five store closures had no lease exit costs because their leases had expired. This compares to closing six stores and relocating one store during fiscal 2010; five of the six stores closed during fiscal 2010 are included in continuing operations.

Net Interest ExpenseNet interest expense, which includes debt, interest on capital leases and distribution center sale-leaseback obligations, was $12.8 million in fiscal 2011 compared to $11.1 million in fiscal 2010. Interest related to the distribution center sale-leaseback obligations was $8.5 million and $8.3 million for fiscal 2011 and fiscal 2010, respectively.

Income TaxesThe Company’s effective tax rate for fiscal 2011 was 8.6%, compared to 23.1% in fiscal 2010. The rate decrease is primarily due to an increase in the Company’s fiscal 2011 pre-tax book income without a corresponding increase in federal tax related to the use of the net operating losses and a decrease in the state tax rate. The state tax rate decrease is primarily due to the tax expense remaining relatively unchanged due to the Company’s transfer pricing agreement, even with substantial increases to taxable income. For fiscal 2011, the Company reserved against all remaining net deferred tax assets. For more information, see Note 10 to our consolidated financial statements.

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Fiscal 2010 Compared to Fiscal 2009

Net SalesNet sales increased $49.5 million, or 5.7%, to $916.6 million in fiscal 2010 from $867.0 million in fiscal 2009. The increase in net sales was attributable to a 7.2% increase in comparable store sales compared to a 7.1% decrease in fiscal 2009. Customer count for fiscal 2010 increased 7.7% and the average ticket decreased 0.4%. As of January 29, 2011, the calculation of comparable store sales included a base of 262 stores. As of January 29, 2011, the Company operated 263 stores compared to 268 stores as of January 30, 2010.

Home furnishings were 60% of sales in fiscal 2010 compared to 59% in fiscal 2009 and consumables were 40% of sales in fiscal 2010 compared to 41% in fiscal 2009. During fiscal 2010, there was a modest shift in sales mix back towards the home categories which is part of the Company’s ongoing strategy.

Cost of Sales and OccupancyCost of sales and occupancy decreased $12.2 million, or 1.9%, to $625.6 million in fiscal 2010 compared to $637.9 million in fiscal 2009. As a percentage of net sales, total cost of sales and occupancy decreased 530 basis points to 68.3% in fiscal 2010 from 73.6% in fiscal 2009. Cost of sales as a percentage of net sales for fiscal 2010 decreased 380 basis points based on the strong performance in non-furniture home categories as well as significantly lower markdowns and higher initial markups across most categories of the business compared with fiscal 2009. Occupancy as a percentage of net sales for fiscal 2010 decreased 150 basis points as a result of lower costs and the leveraging of the costs on higher comparable store sales.

Selling, General and Administrative (“SG&A”) ExpensesSG&A expenses remained flat at $270.9 million for both fiscal 2010 and fiscal 2009. As a percentage of net sales, SG&A expenses for fiscal 2010 decreased 160 basis points to 29.6% in 2010 from 31.2% in fiscal 2009. Included in SG&A for fiscal 2010 is $5.5 million of expense related to the estimated annual bonus payout under the fiscal 2010 Management Incentive Plan. There was no Management Incentive Plan bonus for fiscal 2009.

Store Closure CostsCosts related to closing the stores classified within continuing operations totaled $3.2 million for fiscal 2010 compared to $5.8 million for fiscal 2009. The company closed five stores classified as continuing operations in fiscal 2010 compared to eight stores in fiscal 2009. The store closure costs for fiscal 2010 and fiscal 2009 primarily consist of lease exit costs which are recorded at the time the store is closed as well as other costs related to closing the stores such as relocating and terminating employees.

Net Interest ExpenseNet interest expense was $11.1 million in fiscal 2010 compared to $11.2 million in fiscal 2009. Included in net interest expense is interest related to the distribution center lease obligations of $8.3 million and $8.2 million for fiscal 2010 and fiscal 2009, respectively.

Income Taxes The Company’s effective tax rate for fiscal 2010 was 23.1%, compared to a benefit of 16.7% in fiscal 2009. The rate increase was primarily due to the Company’s pre-tax book income and corresponding increase in state tax expense. For fiscal 2010, the Company reserved against all remaining net deferred tax assets. For more information, see Note 10 to our consolidated financial statements.

Liquidity and Capital Resources

The Company’s cash and cash equivalents balance at the end of fiscal 2011 was $5.9 million compared to $2.7 million at the end of fiscal 2010. The Company’s primary uses for cash are to provide working capital for operations, to service our obligations, to pay interest and principal on debt, and to fund capital expenditures. Historically, the Company has financed its operations primarily from cash generated from operations and seasonal borrowings under an asset-based credit facility.

Prior to achieving net income in fiscal 2011 and fiscal 2010, we incurred net losses in each annual period since fiscal 2006. As of January 28, 2012, we had an accumulated deficit of $78.1 million. For fiscal 2009, we did not generate positive cash flows from operating activities. There can be no assurance that our business will

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continue to be profitable or will generate sufficient cash to fund operations in the future or that additional losses and negative cash flows from operations will not be incurred, particularly on a quarterly basis, which could have a material adverse effect on our financial condition. We are dependent upon our asset-based credit facility to fund operations and seasonal inventory purchases throughout the year. Access to our asset-based credit facility is dependent upon meeting our debt covenants and not exceeding the borrowing limit of the asset-based credit facility. There can be no assurance that we will achieve or sustain positive cash flows, particularly on a quarterly basis, from operations or profitability. If we are unable to maintain adequate liquidity, it could have a material adverse affect on our financial condition and future operations may need to be scaled back or discontinued. However, based on our current business plan and revenue projections, we believe that our existing cash balance, our anticipated cash flows from operations and our available asset-based credit facility will be sufficient to meet our working capital and operating resource expenditure requirements for the next 12 months and the foreseeable future.

Cash Flows From Operating ActivitiesNet cash provided by operating activities was $39.5 million for fiscal 2011 compared to $31.6 million for fiscal 2010. The increase in net cash provided by operations was primarily due to higher net income of $16.5 million in fiscal 2011 compared to net income of $2.9 million in fiscal 2010, as well as other working capital improvements, offset by the receipt of a $13.0 million one time tax refund in the first quarter of fiscal 2010 that was not repeated in fiscal 2011.

Net cash provided by operating activities was $31.6 million for fiscal 2010 compared to cash used in operating activities of $5.3 million for fiscal 2009. The increase in net cash provided by operations was primarily due to recognizing net income of $2.9 million in fiscal 2010 versus a net loss of $63.3 million in fiscal 2009 and the receipt of a $13.0 million one time tax refund in the first quarter of fiscal 2010. The increase was partially offset by a moderate increase in inventory levels during the year compared to a large decrease the previous year.

Cash Flows From Investing Activities Net cash used in investing activities was $9.6 million for fiscal 2011, an increase of $5.3 million from fiscal 2010. In fiscal 2011, there were increases in spending related to store projects, information systems and visual merchandise compared to fiscal 2010.

Net cash used in investing activities was $4.3 million for fiscal 2010, an increase of $0.8 million from fiscal 2009. In fiscal 2010, there was a minor increase in spending related to information systems, visual merchandise and store projects compared to fiscal 2009.

The Company estimates that fiscal 2012 capital expenditures will approximate $18.5 million; including $10.9 million for management information systems and distribution center projects and $7.6 million for investments in new and existing stores and various other corporate projects.

Cash Flows From Financing Activities Net cash used in financing activities was $26.6 million for fiscal 2011 compared to net cash used in financing activities of $27.2 million in fiscal 2010. At the end of fiscal 2011, the Company paid its asset-based credit facility off in its entirety (including the $10.0 million term loan), which resulted in having no outstanding borrowings under its asset-based credit facility at the end of fiscal 2011, compared to $25.4 million outstanding at the end of fiscal 2010. The Company had $0.1 million in payments from debt issuance costs compared to $2.3 million for fiscal 2010 due the amended and extended secured five-year credit agreement the Company entered into during the fourth quarter of fiscal 2010. Additionally, proceeds from the issuance of common stock were $0.6 million for fiscal 2011 compared to no proceeds for fiscal 2010.

Net cash used in financing activities was $27.2 million for fiscal 2010 compared to net cash provided by financing activities of $7.8 million in fiscal 2009. The Company had outstanding borrowings from its asset-based credit facility of $25.4 million at the end of fiscal year 2010 which decreased from $48.5 million at the end of fiscal year 2009 because the Company paid down more than it borrowed during the year. Debt issuance cost payments increased by $2.3 million during fiscal 2010 related to the amended and extended secured five-year credit agreement the Company entered into during the fourth quarter of fiscal 2010 compared to no debt issuance costs paid in the prior year.

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Revolving lines of CreditThe Company has a secured five-year credit agreement with a group of banks and Bank of America, N.A. as the administrative agent, collateral agent, swing line lender, and letter of credit issuer (the “Credit Agreement”). The Credit Agreement allows for cash borrowings under a revolving loan and letters of credit under a secured asset-based credit facility of up to $190.0 million as well as a $10.0 million term loan which was drawn on the effective date. As of January 28, 2012, the Company has paid off the outstanding borrowings from the asset-based credit facility and the $10.0 million term loan in full. The amount available for borrowing at any time is limited by a stated percentage of the aggregate amount of the liquidated value of eligible inventory and the face amount of eligible credit card receivables. The Credit Agreement includes three options to increase the size of the asset-based credit facility by up to $50.0 million in the aggregate. All borrowings and letters of credit under the Credit Agreement are collateralized by all assets presently owned or hereafter-acquired by the Company. Interest is paid in arrears monthly, quarterly, or over the applicable interest period as selected by the Company in the Revolving Loan Notice, with the entire balance payable on January 3, 2016. Borrowings pursuant to the asset-based credit facility bear interest, at the Company’s election, at a rate equal to either (i) the higher of Bank of America’s prime rate or the federal funds effective rate plus an applicable margin; or (ii) the LIBOR rate plus an applicable margin. The applicable margin is based on the Company’s Average Daily Availability (as defined in the Credit Agreement). In addition, the Company pays a commitment fee on the unused portion of the amount available for borrowing as described in the Credit Agreement. The Credit Agreement includes limitations on the ability of the Company to, among other things, incur debt, grant liens, make investments, enter into mergers and acquisitions, pay dividends, change its business, enter into transactions with affiliates, and dispose of assets. The events of default under the Credit Agreement include, among others, payment defaults, cross defaults with certain other indebtedness, breaches of covenants, loss of collateral, judgments, changes in control, and bankruptcy events. In the event of a default, the Credit Agreement requires the Company to pay incremental interest at the rate of 2.0% and the lenders may, among other remedies, foreclose on the security (which could include the sale of the Company’s inventory), eliminate their commitments to make credit available, declare due all unpaid principal amounts outstanding, and require cash collateral for any letter of credit obligations. In addition, in the event of a default or if the Company’s Availability (as defined in the Credit Agreement) is not equal to the greater of either $20.0 million or 15% of the loan cap under the asset-based credit facility, the Company will be subject to additional restrictions, including specific restrictions with respect to its cash management procedures.

The Company intends to use the proceeds from the Credit Agreement for working capital, issuance of commercial and standby letters of credit, capital expenditures, and other general corporate purposes. As of January 28, 2012, the Company was in compliance with its loan covenant requirements, paid its asset-based credit facility off in its entirety (including the $10.0 million term loan) and had $9.6 million in outstanding letters of credit, and credit available under the Credit Agreement of $135.9 million. 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 season, therefore borrowings under the line of credit often peak during the beginning of the fourth quarter.

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Contractual Obligations and Commercial Commitments The following table provides summary information concerning the Company’s future contractual obligations and commercial commitments as of January 28, 2012:

Contractual Obligations (in millions)1	Less than 1 Year		1-3 Years		4-5 Years		After 5 Years		Total Amount Committed
Operating leases	$	78.8	$	169.2	$	43.3	$	27.0	$	318.3
Capital leases (principal and interest)		1.3		2.9		1.5		3.2		8.9
Long-term distribution center sale-leaseback obligations		0.9		3.2		2.4		105.3		111.8
Merchandise letters of credit		3.1		—		—		—		3.1
Standby letters of credit		6.5		—		—		—		6.5
Purchase obligations2		120.0		—		—		—		120.0
Interest3		8.6		25.8		17.7		184.7		236.8
Total	$	219.2	$	201.1	$	64.9	$	320.2	$	805.4

1. This table excludes $0.4 million of liabilities for uncertain tax positions as we are not able to reasonably estimate when cash payments for these liabilities will occur. This amount, however, has been recorded as a liability in the accompanying Consolidated Balance Sheet as of January 28, 2012.

2. Represents outstanding purchase orders, which were primarily related to merchandise inventory. Such purchase orders are generally cancelable at the discretion of the Company until the order has been shipped. The table above excludes certain immaterial executory contracts for goods and services that tend to be recurring in nature and similar in amount year over year.

3. Represents interest expected to be paid on our deferred financing obligations related to the distribution centers.

Off Balance Sheet Arrangements

Other than the operating leases and letters of credit discussed above, the Company has no financial arrangements involving special-purpose entities or lease agreements, commonly described as synthetic leases, or any off-balance sheet arrangements that have a material current effect, or that are reasonably likely to have a material future effect, on the Company’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Impact of New Accounting Standards

In May 2011, the FASB issued an accounting standards update to expand disclosure requirements for fair value measurements. This guidance requires entities to disclose the categorization by level of the fair value hierarchy for items that are not measured at fair value in the statement of financial position but for which the fair value is required to be disclosed. This accounting standards update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company does not expect the adoption of the accounting standard update and disclosure to have a material impact on its consolidated financial statements.

Inflation

The Company does not believe that inflation has had a material effect on its financial condition and results of operations during the past three fiscal years. However, there can be no assurance that the Company’s business will not be affected by inflation in the future.

Quarterly Results and Seasonality

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 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, if any, for the entire fiscal year. Any factors negatively affecting the Company during the Holiday selling season in

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any year, including unfavorable economic conditions, could have a material adverse effect on the Company’s financial condition and results of operations. The Company generally experiences lower sales and earnings during the first three quarters and, as is typical in the retail industry, may incur losses in these quarters. The results of operations for these interim periods are not necessarily indicative of the results for a full fiscal year. 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 gross sales due to insufficient inventory or lost gross margin due to the need to mark down excess inventory.

The Company’s quarterly results of operations may also fluctuate based upon such factors as delays in the flow of merchandise, the ability to realize the expected operational and cost efficiencies from its distribution centers, 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, competitive factors, changes in fuel and other shipping costs, general economic conditions, geopolitical conditions, fluctuations in the value of the U.S. dollar against foreign currencies, labor market fluctuations, changes in accounting rules and regulations and unseasonable weather conditions.

Critical Accounting Policies and Estimates

Cost Plus, Inc.’s and its subsidiaries’ discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Estimates and assumptions include, but are not limited to, inventory values, fixed asset lives, intangible asset values, deferred income taxes, self-insurance reserves and the impact of contingencies and litigation. The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates under different assumptions or conditions. The Company has also chosen certain accounting policies when options are available, including the retail inventory method of accounting for inventories. Operating results would be affected if other alternatives were used.

The Company believes that the following represent the more critical estimates and assumptions used in the preparation of the consolidated financial statements.

Inventory Inventories are stated at the lower of cost or market with cost determined under the retail inventory method (“RIM”), in which the valuation of inventories at cost and gross margins are calculated by applying a cost-to-retail ratio to the retail value of inventories. RIM is an averaging method that is widely used in the retail industry due to its practicality. The Company’s use of the RIM results in valuing inventories at lower of cost or market as markdowns are currently taken as a reduction of the retail value of inventories. Inherent in the RIM calculation are certain significant management judgments and estimates including, among others, merchandise markup, markdowns and shrinkage, which significantly impact the ending inventory valuation at cost as well as gross margin. Physical inventories are conducted annually during the second fiscal quarter to calculate actual shrinkage and inventory on hand. Estimates are used to charge inventory shrinkage for the remaining quarters of the fiscal year. Consideration is given to a number of quantitative factors, including anticipated subsequent markdowns and aging of inventories. To the extent that actual markdowns are higher or lower than estimated, the Company’s gross margins could increase or decrease and, accordingly, affect its financial position and results of operations. A significant variation between the estimated provision and actual results could have a substantial impact on the Company’s results of operations. Management does not believe there is a reasonable likelihood of a material change in the assumed factors used to create the estimates the Company uses to calculate its ending inventory under RIM. The Company’s RIM utilizes multiple departments

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in which fairly homogeneous classes of merchandise inventories having similar gross margins are grouped. Management believes that the Company’s RIM provides an inventory valuation that reasonably approximates cost and results in carrying inventory at the lower of cost or market. Inventory costs also include certain buying and distribution costs related to the procurement, processing and transportation of merchandise.

Self-Insured Liabilities The Company is primarily self-insured for workers’ compensation, employee health benefits and general liability claims. The Company determines self-insurance liabilities based on claims filed, including the development of those claims, and an estimate of claims incurred but not yet reported. Factors affecting this estimate include future inflation rates, changes in severity, benefit level changes, medical costs and claim settlement patterns. Should a different amount of claims occur compared to what was estimated, or costs of the claims increase or decrease beyond what was anticipated, reserves may need to be adjusted accordingly.

Income TaxesThe Company assesses the likelihood that deferred tax assets will be realized in the future and records a valuation allowance, if necessary, to reduce deferred tax assets to the amount that it believes is more likely than not to be realized. In evaluating our ability to recover our deferred tax assets we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial operations. In fiscal year 2011 the valuation allowance was decreased by $2.7 million, and in fiscal years 2010 and 2009, the valuation allowance was increased by $0.5 million and $16.0 million, respectively. This is a non-cash charge that management felt was appropriate to record due to the cumulative losses in recent years and the store closure activities met the prescribed criteria for taking an allowance. The Company’s effective tax rate may be materially impacted by changes in the estimated level of earnings and changes in the deferred tax valuation allowance.

The Company recognizes tax positions when they are more likely than not to be sustained upon examination. The amount recognized is measured as the largest amount of benefit that is more likely than not to be realized upon settlement. The Company is subject to periodic audits by the Internal Revenue Service and state and local taxing authorities. These audits may challenge certain of the Company’s tax positions such as the timing and amount of income and deductions and the allocation of taxable income to various tax jurisdictions. The Company evaluates its tax positions and establishes liabilities in accordance with the applicable accounting guidance on uncertainty in income taxes. These tax uncertainties are reviewed as facts and circumstances change and are adjusted accordingly. This requires significant management judgment in estimating final outcomes. Actual results could materially differ from these estimates and could significantly affect the Company’s effective tax rate and cash flows in future years.

Section 382 of the Internal Revenue Code (“Section 382”) imposes limitations on a corporation’s ability to utilize its net operating losses (“NOL”) if it experiences an “ownership change.” In general terms, an ownership change results from transactions increasing the ownership of certain existing stockholders and, or, new stockholders in the stock of a corporation by more than 50 percentage points during a three year testing period. Any unused annual limitation may be carried over to later years, and the amount of the limitation may, under certain circumstances, be increased to reflect both recognized and deemed recognized “built-in gains” that occur during the sixty-month period after the ownership change. Based on our analysis to date, we have undergone an ownership change. The resulting limitation does not affect the Company’s ability to utilize its NOL for the year ended January 28, 2012. However, in future years the Company’s ability to utilize net operating losses will be limited. The “ownership change” that the Company experienced also imposes limitations on the Company’s California state enterprise zone credits (“EZ Credits”) carryforwards under Internal Revenue Code Section 383. The resulting limitation did affect the Company’s ability to utilize its EZ Credits for fiscal 2010 and the Company expects it will continue to be limited.

ImpairmentThe Company reviews long-lived assets and intangible assets with finite useful lives for impairment at least annually or whenever events or changes in circumstances indicate that their carrying values may not be recoverable. Using its best estimates based on reasonable assumptions and projections, the Company records an impairment loss to write such assets down to their estimated fair values if the carrying values of the

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assets exceed their related undiscounted expected future cash flows. Store-specific long-lived assets and intangible assets with finite lives are evaluated along with the stores in their respective media market, which is the lowest level at which individual cash flows can be identified. Corporate assets or other long-lived assets that are not store-specific are evaluated at a consolidated entity level. Based on the impairment tests performed during fiscal 2011, there was no impairment of long-lived and intangible assets with finite lives in fiscal 2011. During fiscal 2010, the Company recorded a $58,000 non-cash impairment charge to write-down property and equipment at the four underperforming stores that closed during the first quarter of fiscal 2011 as they had reached the end of their lease terms. Additionally, during fiscal 2009, the Company recorded a $1.1 million non-cash charge for the write-down of property and equipment at the five stores that closed in fiscal 2010 and certain other underperforming stores.

Accrued Store Closure and Lease Exit CostsThe Company records the estimated future liability for any store closures where a lease obligation still exists; associated with the rental obligation on the date the store is closed and the liability for the costs associated with an exit or disposal activity is recognized when the liability is incurred.

Litigation, Claims and AssessmentsThe Company is involved in litigation, claims and assessments incidental to its business, the disposition of which is not expected to have a material effect on the Company’s financial position or results of operations. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in the Company’s assumptions related to these matters. The Company’s policy is to accrue its best estimate of the probable cost for the resolution of claims. When appropriate, such estimates are developed in consultation with outside counsel handling the matters and are based upon a combination of litigation and settlement strategies. To the extent additional information arises or the Company’s strategies change, it is possible that the Company’s best estimate of its probable liability may change.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to financial market risks, which include changes in U.S. interest rates and foreign exchange rates. The Company does not engage in financial transactions for trading or speculative purposes.

Interest Rate Risk The interest payable on the Company’s bank line of credit is based on a variable interest rate and therefore is affected by changes in market interest rates. If interest rates on existing variable rate debt were to rise 50 basis points (a 10% change from the Company’s borrowing rate as of January 28, 2012), the Company’s results of operations and cash flows would not be materially affected. In the event of a default on the Company’s asset-based credit facility, the Company would be required to pay incremental interest at a rate of 2% on the outstanding loan balance.

Foreign Currency RisksApproximately 94% of purchase obligations outside of the United States of America into which the Company enters are settled in U.S. dollars; therefore, the Company has only minimal exposure to foreign currency exchange risks. The cost of products purchased in international markets can be affected by changes in foreign currency exchange rates and significant exchange rate changes could have a material impact on future product costs. The extent to which an increase in costs from foreign currency exchange rate changes will be able to be recovered in higher prices charged to customers is uncertain. The Company does not currently hedge against foreign currency risks.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Consolidated Financial Statements of Cost Plus, Inc.
Report of Independent Registered Public Accounting Firm		29
Consolidated Balance Sheets		30
Consolidated Statements of Operations		31
Consolidated Statements of Shareholders’ Equity		32
Consolidated Statements of Cash Flows		33
Notes to the Consolidated Financial Statements		34

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Cost Plus, Inc.:

We have audited the accompanying consolidated balance sheets of Cost Plus, Inc. and subsidiaries (the “Company”) as of January 28, 2012 and January 29, 2011, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended January 28, 2012. We also have audited the Company’s internal control over financial reporting as of January 28, 2012, based on criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanyingManagement’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cost Plus, Inc. and subsidiaries as of January 28, 2012 and January 29, 2011, and the results of their operations and their cash flows for each of the three years in the period ended January 28, 2012, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 28, 2012, based on the criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

/s/ Deloitte & Touche LLP

San Francisco, California

April 10, 2012 

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COST PLUS, INC.

Consolidated Balance Sheets

(In thousands, except share amounts)	January 28, 2012			January 29, 2011
ASSETS
Current assets:
Cash and cash equivalents	$	5,870		$	2,691
Merchandise inventories, net		199,707			181,853
Other current assets		13,426			12,420
Total current assets		219,003			196,964
Property and equipment, net		135,411			145,678
Other assets, net		5,216			6,007
Total assets	$	359,630		$	348,649
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	78,423		$	55,822
Accrued compensation		19,017			17,516
Revolving line of credit and term loan		—			25,400
Accrued store closure and lease exit costs		2,660			6,575
Current portion of distribution center sale-leaseback obligations		929			885
Other current liabilities		23,608			20,788
Total current liabilities		124,637			126,986
Capital lease obligations		4,461			6,029
Long-term distribution center sale-leaseback obligations		110,918			111,847
Other long-term obligations		21,185			25,422
Commitments and contingencies (See Note 13)
Shareholders’ equity:
Preferred stock, $.01 par value: 5,000,000 shares authorized; none issued and outstanding		—			—
Common stock, $.01 par value: 67,500,000 shares authorized; issued and outstanding 22,377,663 and 22,087,113 shares		224			221
Additional paid-in capital		176,331			172,768
Accumulated deficit		(78,126	)		(94,624	)
Total shareholders’ equity		98,429			78,365
Total liabilities and shareholders’ equity	$	359,630		$	348,649

See notes to consolidated financial statements.

30

COST PLUS, INC.

Consolidated Statements of Operations

	Fiscal Year Ended
(In thousands, except per share amounts)	January 28, 2012			January 29, 2011			January 30, 2010
Net sales	$	963,833		$	916,564		$	867,045
Cost of sales and occupancy		654,208			625,619			637,851
Gross profit		309,625			290,945			229,194
Selling, general and administrative expenses		277,411			270,853			270,852
Store closure (income)/costs		(41	)		3,173			5,799
Store preopening expenses		176			254			238
Income/(loss) from continuing operations, before interest and taxes		32,079			16,665			(47,695	)
Net interest expense		12,814			11,115			11,206
Income/(loss) from continuing operations before income taxes		19,265			5,550			(58,901	)
Income tax provision/(benefit)		1,554			876			(12,738	)
Net income/(loss) from continuing operations		17,711			4,674			(46,163	)
Loss from discontinued operations		(1,213	)		(1,816	)		(17,156	)
Net income/(loss)	$	16,498		$	2,858		$	(63,319	)
Net income/(loss) per weighted-average share from continuing operations:
Basic	$	0.79		$	0.21		$	(2.09	)
Diluted	$	0.76		$	0.21		$	(2.09	)
Net loss per weighted-average share from discontinued operations:
Basic	$	(0.05	)	$	(0.08	)	$	(0.78	)
Diluted	$	(0.05	)	$	(0.08	)	$	(0.78	)
Net income/(loss) per weighted-average share:
Basic	$	0.74		$	0.13		$	(2.87	)
Diluted	$	0.71		$	0.13		$	(2.87	)
Weighted-average shares outstanding—basic		22,263			22,087			22,087
Weighted-average shares outstanding—diluted		23,357			22,621			22,087

See notes to consolidated financial statements.

31

COST PLUS, INC.

Consolidated Statements of Shareholders’ Equity

	Common Stock				Additional Paid-in Capital		Accumulated deficit			Total Shareholders’ Equity
(In thousands, except shares)	Shares		Amount
Balance at January 31, 2009		22,087,113	$	221	$	170,151	$	(34,163	)	$	136,209
Share-based compensation						1,153					1,153
Net loss								(63,319	)		(63,319	)
Balance at January 30, 2010		22,087,113		221		171,304		(97,482	)		74,043
Share-based compensation						1,464					1,464
Net income								2,858			2,858
Balance at January 29, 2011		22,087,113		221		172,768		(94,624	)		78,365
Exercise of common stock options		290,550		3		555					558
Share-based compensation						3,008					3,008
Net income								16,498			16,498
Balance at January 28, 2012		22,377,663	$	224	$	176,331	$	(78,126	)	$	98,429

See notes to consolidated financial statements.

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COST PLUS, INC.

Consolidated Statements of Cash Flows

	Fiscal Year Ended
(In thousands)	January 28, 2012			January 29, 2011			January 30, 2010
Cash Flows From Operating Activities:
Net income/(loss)	$	16,498		$	2,858		$	(63,319	)
Adjustments to reconcile net income/(loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		19,235			22,832			28,573
Share-based compensation expense		3,008			1,464			1,153
Loss on asset disposal		290			18			516
Impairment of property and equipment		—			58			1,142
Changes in assets and liabilities:
Merchandise inventories		(17,854	)		(4,650	)		40,902
Income taxes		783			13,763			(12,792	)
Other assets		(183	)		6,710			4,866
Accounts payable		22,184			(10,340	)		(8,449	)
Other liabilities		(4,496	)		(1,095	)		2,075
Net cash provided by (used in) operating activities		39,465			31,618			(5,333	)
Cash Flows From Investing Activities:
Purchases of property and equipment		(9,706	)		(4,500	)		(3,553	)
Proceeds from sale of property and equipment		59			155			8
Net cash used in investing activities		(9,647	)		(4,345	)		(3,545	)
Cash Flows From Financing Activities:
Borrowings under term loan		—			10,000			—
Payments under term loan		(10,000	)		—			—
Borrowings under revolving line of credit		274,088			224,306			293,026
Payments under revolving line of credit		(289,488	)		(257,406	)		(283,026	)
Principal payments on long-term distribution center sale-leaseback obligations		(885	)		(877	)		(802	)
Debt issuance costs		(69	)		(2,267	)		—
Principal payments on capital lease obligations		(843	)		(940	)		(1,425	)
Proceeds from the issuance of common stock		558			—			—
Net cash (used in) provided by financing activities		(26,639	)		(27,184	)		7,773
Net increase/(decrease) in cash and cash equivalents		3,179			89			(1,105	)
Cash and Cash Equivalents:
Beginning of period		2,691			2,602			3,707
End of period	$	5,870		$	2,691		$	2,602
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	12,888		$	11,056		$	11,271
Cash paid/(refunded) for income taxes	$	844		$	(12,873	)	$	136
Non-Cash Financing and Investing:
Capital lease obligations entered into	$	—		$	—		$	860

See notes to consolidated financial statements.

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Notes to Consolidated Financial Statements

Note 1. Summary of Business and Significant Accounting Policies

Business Cost Plus, Inc. and subsidiaries (“Cost Plus World Market” or “the Company”) is a specialty retailer of casual home living and entertaining products. At January 28, 2012, the Company operated 258 stores in 30 states under the names “World Market,” “Cost Plus World Market,” “Cost Plus Imports,” and “World Market Stores.” The Company offers customers a broad selection of distinctive products related to the themes of home decorating, home entertaining, and gift giving, overlaid with its core competency in seasonal merchandise. The Company’s product offerings are designed to provide solutions to customers’ casual home furnishing and home entertaining needs. The offerings include home decorating items such as furniture and rugs, as well as a variety of tabletop and kitchen products. Cost Plus World Market stores also offer a number of gift and decorative accessories including collectibles, cards, wrapping paper and other seasonal items. In addition, Cost Plus World Market offers its customers a wide selection of gourmet foods and beverages, including wine, micro-brewed and imported beer, coffee, tea and bottled water.

The Company classifies its sales into home furnishings and consumables product lines. Sales in each category for the prior three fiscal years were as follows:

	Fiscal Year Ended
(In thousands)	January 28, 2012		January 29, 2011			January 30, 2010
Home Furnishings	$	578,356	$	546,510		$	519,074
Consumables		374,375		366,053			355,959
Total		952,731		912,563			875,033
Less: Net sales from discontinued operations		—		(1,833	)		(9,909	)
Add: Drop ship revenue, shipping revenue and other miscellaneous revenue, net of returns allowance		11,102		5,834			1,921
Net sales	$	963,833	$	916,564		$	867,045

Segment ReportingThe Company accounts for its operations as one operating segment. The Company derives 97% of its consolidated net sales from its 258 retail stores, which are all located in the United States across 30 states. Across its store base, the Company operates one store format in which each store offers the same general mix of merchandise with similar categories and similar customers. In addition to its retail stores, the Company operates a direct-to-consumer website representing approximately 3% of net sales in fiscal 2011 compared to 2% of net sales in fiscal 2010. The operating performance of all stores and the direct-to-consumer business has been aggregated into one reportable segment.

LiquidityPrior to achieving net income in fiscal 2011 and fiscal 2010, we incurred net losses in each annual period since fiscal 2006. As of January 28, 2012, we had an accumulated deficit of $78.1 million. For fiscal 2009, we did not generate positive cash flows from operating activities. There can be no assurance that our business will continue to be profitable or will generate sufficient cash to fund operations in the future or that additional losses and negative cash flows from operations will not be incurred, particularly on a quarterly basis, which could have a material adverse effect on our financial condition. We are dependent upon our asset-based credit facility to fund operations and seasonal inventory purchases throughout the year. Access to our asset-based credit facility is dependent upon meeting our debt covenants and not exceeding the borrowing limit of the asset-based credit facility. There can be no assurance that we will achieve or sustain positive cash flows, particularly on a quarterly basis, from operations or profitability. If we are unable to maintain adequate liquidity, it could have a material adverse affect on our financial condition and future operations may need to be scaled back or discontinued. However, based on our current business plan and revenue projections, we believe that our existing cash balance, our anticipated cash flows from operations and our available asset-based credit facility will be sufficient to meet our working capital and operating resource expenditure requirements for the next 12 months and the foreseeable future.

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Fiscal Year The Company’s fiscal year end is the Saturday closest to the end of January. The current and prior fiscal years ended January 28, 2012 (fiscal 2011), January 29, 2011 (fiscal 2010) and January 30, 2010 (fiscal 2009). All fiscal years presented consist of 52 weeks.

Principles of Consolidation The consolidated financial statements include the accounts of Cost Plus, Inc. and its subsidiaries. Intercompany balances and transactions are eliminated in consolidation.

Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosures of contingent assets and liabilities, as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company’s significant accounting judgments and estimates affect the valuation of inventories, depreciable lives and impairments of long-lived assets, accrued liabilities, deferred taxes, self-insurance reserves and allowances for sales returns.

Estimated Fair Value of Financial InstrumentsThe carrying value of cash and cash equivalents, accounts receivable, debt and accounts payable approximate their estimated fair value.

Cash Equivalents The Company considers all highly liquid investments with original maturities of 90 days or less as cash equivalents.

Inventories Inventories are stated at lower of cost or market under the retail inventory method (“RIM”), in which the valuation of inventories at cost and gross margins are calculated by applying a cost-to-retail ratio to the retail value of inventories. Cost includes certain buying and distribution costs related to the procurement, processing and transportation of merchandise. Management believes that the Company’s RIM provides an inventory valuation which reasonably approximates cost and results in carrying inventory at the lower of cost or market.

Property and Equipment Buildings, furniture, fixtures and equipment are stated at cost and are depreciated using the straight-line method over the following estimated useful lives:

Buildings	40 years
Store fixtures and equipment	3-10 years
Leasehold improvements	Lesser of life of the asset or lease term
Computer equipment and software	3-5 years

Capital LeasesProperty subject to a non-cancelable lease that meets the criteria of a capital lease is capitalized as an asset in property and equipment and is amortized on a straight-line basis over the lease term.

Other Assets Other assets include lease rights and interests, deferred taxes, debt issuance costs and other intangibles. Lease rights and interests are amortized on a straight-line basis over their related lease terms. Debt issuance costs are amortized on a straight-line basis over the term of the loan.

Impairment of Long-Lived and Intangible Assets The Company reviews long-lived assets and intangible assets with finite useful lives for impairment at least annually or whenever events or changes in circumstances indicate that their carrying values may not be recoverable. Using its best estimates based on reasonable assumptions and projections, the Company records an impairment loss to write such assets down to their estimated fair values if the carrying values of the assets exceed their related undiscounted expected future cash flows. Store-specific long-lived assets and intangible assets with finite lives are evaluated along with the stores in their respective media market, which is the lowest level at which individual cash flows can be identified.

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Corporate assets or other long-lived assets that are not store-specific are evaluated at a consolidated entity level. Based on the impairment tests performed during fiscal 2011, there was no impairment of long-lived and intangible assets with finite lives in fiscal 2011. During fiscal 2010, the Company recorded a $58,000 impairment charge to write-down property and equipment at the four underperforming stores that closed during the first quarter of fiscal 2011 as they had reached the end of their lease terms. Additionally, during fiscal 2009, the Company recorded a $1.1 million charge for the write-down of property and equipment at the five stores that closed in fiscal 2010 and certain other underperforming stores.

Self-Insurance The Company is primarily self-insured for workers’ compensation, general liability costs, and certain health insurance plans with per occurrence and aggregate limits on losses. The Company maintains a comprehensive property insurance policy. The self-insurance liability recorded in the financial statements is based on claims filed and an estimate of claims incurred but not yet reported. The following sets forth the significant insurance coverage by major category:

• Workers’ compensation and general liability insurance: The Company retains losses on individual claims up to a maximum of $300,000 for both workers’ compensation and general liability insurance. The Company has a combined workers’ compensation and general liability insurance aggregate limit of $10.2 million.

• Property insurance: The Company maintains a $250,000 deductible for each submitted claim.

• Health insurance: The Company has a stop loss provision per claim of $325,000, and an aggregate of $10.2 million.

Deferred Rent Certain of the Company’s operating leases contain predetermined fixed escalations of minimum rentals during the initial term. For these leases, the Company recognizes the related rental expense on a straight-line basis over the life of the lease from the date the Company takes possession of the facility and records the difference between amounts charged to operations and amounts paid as deferred rent. As part of its lease agreements, the Company may receive certain lease incentives, primarily tenant improvement allowances. These allowances are also deferred and are amortized as a reduction of rent expense on a straight-line basis over the life of the lease. Deferred rent of $20.8 million and $24.9 million is reflected in other long-term obligations on the consolidated balance sheets as of January 28, 2012 and January 29, 2011, respectively.

Share-Based CompensationThe Company accounts for all share-based payments to employees and members of its board of directors as share-based compensation cost based on the fair value on the date of grant. Share-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that are ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company determines fair value of such stock option awards using the Black-Scholes option pricing model. The Black-Scholes option pricing model incorporates certain assumptions, such as risk-free interest rate, expected volatility, expected dividend yield and expected life of options, in order to arrive at a fair value estimate. The Company’s deferred stock units are issued and measured at fair value on the date of grant and fully vest on the one year anniversary from the date of grant.

Revenue RecognitionThe Company recognizes revenue from the sale of merchandise either at the point of sale in its stores or at delivery to the customer for merchandise purchased from its website. Revenue from sales of gift cards is deferred until redemption or until the likelihood of redemption by the customer is remote (gift card breakage). Income from gift card breakage is recorded as a reduction to selling, general and administrative expenses. Shipping and handling fees charged to customers are recognized as revenue at the time the merchandise is delivered to the customer. The Company’s revenues are reported net of discounts and returns, including an allowance for estimated returns. The allowance for sales returns is based on historical experience and was approximately $1.0 million at the end of fiscal 2011, $0.8 million at the end of fiscal 2010 and $0.6 million at the end of fiscal 2009. Revenues are presented net of any taxes collected from customers and remitted to governmental authorities.

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Cost of Sales and Occupancy Cost of sales includes the cost of inventory sold during the period, including costs to acquire merchandise inventory and costs of freight and distribution. The costs of maintaining warehouse facilities including depreciation, rent, utilities and certain indirect costs such as product purchasing activities and logistics are also charged to cost of sales. Occupancy costs include rent expense under store lease agreements, common area maintenance costs charged to the Company by landlords and property taxes.

Vendor Credits and RebatesMarkdown allowances are recognized as a credit to cost of sales upon the later of sale of the individual units or receipt of the markdown allowance. Once granted, the Company recognizes volume rebates ratably over the period rebates are earned unless they are not reasonably estimable, in which case they are recognized when the milestones are achieved. Only when achievement of the rebate appears probable does the Company recognize the credit over the milestone period. The rebates are recognized as a credit to cost of sales. Allowances from vendors for items such as shipping delays and defective merchandise are recognized as a credit to cost of sales as the related specific merchandise is sold or marked out of stock.

Selling, General and Administrative Expenses Selling, general and administrative expenses include costs related to functions such as advertising, store operations, corporate management, marketing, administration, legal and accounting and their related compensation costs, as well as other costs. Such other costs include credit card fees, utilities, management information systems operating costs, telephone and other communication charges, professional and other consulting fees, travel related expenses, insurance costs, and asset impairment charges.

Advertising Expense Advertising expenses, which include newspaper, radio, and other media advertising, are expensed as incurred or at the point of first broadcast or distribution. For fiscal 2011, 2010 and 2009, advertising costs were $49.4 million, $49.5 million and $51.4 million, respectively.

Store Closure (Income)/CostsThe Company had store closure income from continuing operations of $41,000 for fiscal 2011 compared to costs of $3.2 million for fiscal 2010. The store closure income for fiscal 2011 was due to a payment received in the second quarter of fiscal 2011 from a landlord related to a favorable early lease termination, partially offset by the costs of closing the store and other lease exit cost adjustments. The Company closed five stores and relocated one store during fiscal 2011; all of the stores closed during fiscal 2011 are included in continuing operations and four of the five store closures had no lease exit costs because their leases had expired. This compares to closing six stores and relocated one store during fiscal 2010; five of the six stores closed during fiscal 2010 are included in continuing operations.

Store Preopening ExpensesStore preopening expenses include rent expense incurred prior to opening as well as grand opening advertising, labor, travel and hiring expenses and are expensed as incurred.

Concentration of Credit Risk Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and cash equivalents. The Company places its cash and cash equivalents with financial institutions. At times, such balances may be in excess of FDIC insurance limits.

Income TaxesIncome tax expense or benefit reflects the amount of taxes payable or refundable for the current year, the impact of deferred tax liabilities and deferred tax assets, accrued interest on tax deficiencies and refunds and accrued penalties on tax deficiencies. Deferred income taxes represent future net tax effects resulting from temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is recorded against deferred tax assets if there is doubt about the realization of such assets in the future. The Company has recorded a full valuation allowance against its deferred tax assets for fiscal 2011, 2010 and 2009.

Tax positions are recognized when they are more likely than not to be sustained upon examination. The amount recognized is measured as the largest amount of benefit that is more likely than not to be realized upon settlement. The Company is subject to periodic audits by the Internal Revenue Service and state and local taxing authorities. These audits may challenge certain of the Company’s tax positions such as the timing and amount of

37

income and deductions and the allocation of taxable income to various tax jurisdictions. The Company evaluates its tax positions and establishes liabilities in accordance with the applicable accounting guidance on uncertainty in income taxes. These tax uncertainties are reviewed as facts and circumstances change and are adjusted accordingly. This requires significant management judgment in estimating final outcomes. Actual results could materially differ from these estimates and could significantly affect the Company’s effective tax rate and cash flows in future years.

Comprehensive Income/(Loss) Comprehensive income/(loss) was the same as net income/(loss) for all periods presented.

Net Income/(Loss) per ShareBasic earnings/(loss) per share (“EPS”) is computed by dividing net income/(loss) by the weighted-average number of common shares outstanding for the period. Diluted earnings/(loss) per share is similarly computed, and includes the effect, if dilutive, of the Company’s weighted-average number of stock options outstanding and shares of deferred stock units.

New Accounting PronouncementsIn May 2011, the FASB issued an accounting standards update to expand disclosure requirements for fair value measurements. This guidance requires entities to disclose the categorization by level of the fair value hierarchy for items that are not measured at fair value in the statement of financial position but for which the fair value is required to be disclosed. This accounting standards update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company does not expect the adoption of the accounting standard update disclosure to have a material impact on its consolidated financial statements.

Note 2. Accrued Store Closure and Lease Exit Costs

When stores under long-term leases close, the Company records a liability for the future minimum lease payments and related ancillary costs, net of estimated sublease income and discounted using a risk-adjusted rate of interest. This liability is recorded at the time the store is closed and at the end of each quarter, the Company adjusts the estimated liability balance based on actual sublease income and lease settlement agreements that occurred during the period. Accrued store closure and lease exit costs also include costs related to closing the stores and relocating and terminating employees. Additional charges or recoveries related to the planned disposition of stores may be incurred as a result of changes to management’s current estimates and assumptions. The timing of future transactions and charges related to these store closures are subject to significant uncertainty, including the variability in future vacancy periods, sublease income or negotiations with landlords regarding buy-out payments on leases.

Following is a summary of the accrued store closure and lease exit costs on the Company’s consolidated balance sheet as of January 28, 2012, January 29, 2011 and January 30, 2010, respectively:

(In thousands)	January 28, 2012			January 29, 2011			January 30, 2010
Beginning Balance	$	6,575		$	10,220		$	3,110
Lease exit costs, net of estimated sublease income		1,438			4,245			18,844
Severance and closure costs		548			416			1,552
Payments for leases and settlements		(5,251	)		(7,827	)		(11,851	)
Payments for severance and closure costs		(650	)		(479	)		(1,435	)
Ending Balance	$	2,660		$	6,575		$	10,220

Note 3. Discontinued Operations

The Company did not have any operations which were discontinued during fiscal 2011. The loss from discontinued operations for fiscal 2011 primarily consists of the costs associated with the quarterly adjustments

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to the lease exit liabilities that were established for the stores that closed in prior years and that have leases which have not yet been exited. These lease exit costs were approximately $1.1 million for fiscal 2011, $1.6 million for fiscal 2010 and $16.1 million in fiscal 2009.

The recognition of the costs associated with closing the stores requires the Company to make judgments and estimates regarding the nature, timing, and costs, including estimated lease exit costs net of estimated sublease income, employee severance and various other costs related to the closure of stores. Additional charges or recoveries related to the planned disposition of stores may be incurred as a result of changes to management’s current estimates and assumptions. The timing of future transactions and charges related to these store closures are subject to significant uncertainty, including the variability in future vacancy periods, and sublease income or negotiations with landlords regarding buy-out payments on leases.

Results from discontinued operations were as follows:

	Fiscal Year Ended
(In thousands)	January 28, 2012			January 29, 2011			January 30, 2010
Store sales	$	—		$	1,833		$	9,909
Costs and expenses:
Cost of store sales and occupancy		—			1,425			7,718
Operating and administrative expenses		77			639			4,747
Lease exit costs, net of estimated sublease income		1,136			1,481			14,040
Severance benefits and other closure costs		—			104			560
Loss from discontinued operations, net of tax	$	(1,213	)	$	(1,816	)	$	(17,156	)

Note 4. Property and Equipment

Property and equipment consist of the following:

(In thousands)	January 28, 2012			January 29, 2011
Building and leasehold improvements	$	100,090		$	99,029
Facilities and land subject to sale and leaseback		115,094			115,056
Furniture, fixtures, equipment and software		132,422			128,698
Facilities under capital leases		14,437			15,907
Total		362,043			358,690
Less: accumulated depreciation and amortization		(226,632	)		(213,012	)
Property and equipment, net	$	135,411		$	145,678

At January 28, 2012, total net property and equipment includes a non-cash construction in progress accrual of $0.5 million.

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Note 5. Other Assets

Other assets consist of the following:

(In thousands)	January 28, 2012			January 29, 2011
Lease rights and interests	$	1,288		$	1,288
Other intangibles		1,969			1,956
Prepaid rent		2,581			2,581
Debt issuance costs—line of credit		2,571			2,622
Other		1,216			1,227
Total		9,625			9,674
Less: accumulated amortization		(4,409	)		(3,667	)
Other assets, net	$	5,216		$	6,007

Note 6. Leases

The Company leases certain properties consisting of retail stores, distribution centers, corporate offices and equipment. Store leases typically contain initial terms of ten years and provisions for two to three renewal options of five to ten years each. The retail stores, distribution centers and corporate office leases generally provide that the Company assumes the maintenance and all or a portion of the property tax obligations on the leased property. Certain store leases also require contingent rent based on store revenues.

The minimum rental payments required under capital leases (with interest rates ranging from 3.2% to 12.7%) and non-cancelable operating leases with a remaining lease term in excess of one year at January 28, 2012 are as follows:

(In thousands)	Capital Leases			Operating Leases		Total
Fiscal year:
2012	$	1,341		$	78,844	$	80,185
2013		1,108			69,475		70,583
2014		913			57,123		58,036
2015		839			42,635		43,474
2016		764			28,318		29,082
Thereafter through the year 2040		3,965			41,891		45,856
Minimum lease commitments		8,930		$	318,286	$	327,216
Less: amount representing interest		(3,729	)
Present value of capital lease obligations		5,201
Less current portion		(740	)
Long-term portion	$	4,461

Interest expense related to capital leases was $0.8 million, $0.9 million, and $0.9 million for fiscal 2011, 2010, and 2009, respectively.

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Minimum and contingent rental expense under operating and capital leases and sublease rental income is as follows:

	Fiscal Year Ended
(In thousands)	January 28, 2012			January 29, 2011			January 30, 2010
Operating leases:
Minimum rental expense	$	75,673		$	74,594		$	78,050
Contingent rental expense		425			189			297
Less: sublease rental income		(406	)		(541	)		(407	)
Total	$	75,692		$	74,242		$	77,940
Capital leases—contingent rental expense	$	1,386		$	1,459		$	1,463

Total minimum rental income to be received from non-cancelable sublease agreements through 2017 is approximately $1.2 million.

Note 7. Revolving Lines of Credit

The Company has a secured five-year credit agreement with a group of banks and Bank of America, N.A. as the administrative agent, collateral agent, swing line lender, and letter of credit issuer (the “Credit Agreement”). The Credit Agreement allows for cash borrowings under a revolving loan and letters of credit under a secured asset-based credit facility of up to $190.0 million as well as a $10.0 million term loan which was drawn on the effective date. As of January 28, 2012, the Company has paid off the outstanding borrowings from the asset-based credit facility and the $10.0 million term loan in full. The amount available for borrowing at any time is limited by a stated percentage of the aggregate amount of the liquidated value of eligible inventory and the face amount of eligible credit card receivables. The Credit Agreement includes three options to increase the size of the asset-based credit facility by up to $50.0 million in the aggregate. All borrowings and letters of credit under the Credit Agreement are collateralized by all assets presently owned or hereafter-acquired by the Company. Interest is paid in arrears monthly, quarterly, or over the applicable interest period as selected by the Company in the Revolving Loan Notice, with the entire balance payable on January 3, 2016. Borrowings pursuant to the asset-based credit facility bear interest, at the Company’s election, at a rate equal to either (i) the higher of Bank of America’s prime rate or the federal funds effective rate plus an applicable margin; or (ii) the LIBOR rate plus an applicable margin. The applicable margin is based on the Company’s Average Daily Availability (as defined in the Credit Agreement). In addition, the Company pays a commitment fee on the unused portion of the amount available for borrowing as described in the Credit Agreement. The Credit Agreement includes limitations on the ability of the Company to, among other things, incur debt, grant liens, make investments, enter into mergers and acquisitions, pay dividends, change its business, enter into transactions with affiliates, and dispose of assets. The events of default under the Credit Agreement include, among others, payment defaults, cross defaults with certain other indebtedness, breaches of covenants, loss of collateral, judgments, changes in control, and bankruptcy events. In the event of a default, the Credit Agreement requires the Company to pay incremental interest at the rate of 2.0% and the lenders may, among other remedies, foreclose on the security (which could include the sale of the Company’s inventory), eliminate their commitments to make credit available, declare due all unpaid principal amounts outstanding, and require cash collateral for any letter of credit obligations. In addition, in the event of a default or if the Company’s Availability (as defined in the Credit Agreement) is not equal to the greater of either $20.0 million or 15% of the loan cap under the asset-based credit facility, the Company will be subject to additional restrictions, including specific restrictions with respect to its cash management procedures.

The Company intends to use the proceeds from the Credit Agreement for working capital, issuance of commercial and standby letters of credit, capital expenditures, and other general corporate purposes. As of January 28, 2012, the Company was in compliance with its loan covenant requirements, paid its asset-based

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credit facility off in its entirety (including the $10.0 million term loan) and had $9.6 million in outstanding letters of credit, and credit available under the Credit Agreement of $135.9 million. 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 season, therefore borrowings under the line of credit often peak during the beginning of the fourth quarter.

The borrowing base, based on inventory and accounts receivable value less certain reserves, at January 28, 2012 and at January 29, 2011 consisted of the following (in millions):

	January 28, 2012			January 29, 2011
Account receivable availability	$	8.0		$	6.5
Inventory availability		146.6			132.9
Less: reserves		(9.1	)		(10.4	)
Total borrowing base	$	145.5		$	129.0
The aggregate borrowing base is reduced by the following obligations:
Ending loan balance	$	—		$	25.4
Outstanding letters of credit		9.6			10.8
Total obligations	$	9.6		$	36.2
The availability at January 28, 2012 and at January 29, 2011 was:
Total borrowing base	$	145.5		$	129.0
Less: obligations		(9.6	)		(36.2	)
Total availability	$	135.9		$	92.8

Note 8. Distribution Center Sale-Leaseback Obligations

The Company’s distribution center sale-leaseback obligations as of January 28, 2012 and January 29, 2011 is summarized as follows:

(In thousands)	January 28, 2012			January 29, 2011
Obligations under sale and leaseback:
California distribution centers	$	60,852		$	61,462
Virginia distribution center		50,995			51,270
Total distribution center sale-leaseback obligations		111,847			112,732
Less current portion		(929	)		(885	)
Long-term distribution center sale-leaseback obligations, net	$	110,918		$	111,847

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Total long-term distribution center sale-leaseback obligations mature as follows:

(In thousands)
Fiscal year:
2012	$	929
2013		992
2014		1,060
2015		1,134
2016		1,158
Thereafter through the year 2046		106,574
Total long-term distribution center sale-leaseback obligations	$	111,847

In 2006, the Company entered into a sale-leaseback transaction with Inland Real Estate Acquisitions, Inc., a third party real estate investment trust for its Stockton, California distribution center property. The Company accounted for the transaction whereby the net book value of the asset and the lease obligations remain on the Company’s consolidated balance sheet. The Company also recorded a financing obligation, which is being amortized over the 34-year period of the lease (including option periods) and approximates the discounted value of minimum lease payments under the leases. Monthly lease payments are accounted for as principal and interest payments (at an approximate annual rate of 7.2%) on the recorded obligation. As of January 28, 2012 and January 29, 2011, the balance of the financing obligation was $24.2 million and $24.5 million, respectively, and was included on the Company’s consolidated balance sheet as a distribution center sale-leaseback obligation.

In 2007, the Company entered into a sale-leaseback transaction with Inland Western Stockton Airport Way II, L.L.C., a third party real estate investment company for another distribution center in Stockton, California located adjacent to its existing distribution center. The Company accounted for the transaction whereby the net book value of the asset and the lease obligations remain on the Company’s consolidated balance sheet. The Company also recorded a financing obligation, which is being amortized over the 32-year and nine-month period of the lease (including option periods) and approximates the discounted value of minimum lease payments under the lease. Monthly lease payments are accounted for as principal and interest payments (at an approximate annual rate of 8.4%) on the recorded obligation. As of January 28, 2012 and January 29, 2011, the balance of the financing obligation was approximately $36.7 million and $37.0 million, respectively, and was included on the Company’s consolidated balance sheet as a distribution center sale-leaseback obligation.

In 2006, the Company entered into a sale-leaseback transaction with Inland Real Estate Acquisitions, Inc., for its Windsor, Virginia distribution center property. The Company accounted for the transaction whereby the net book value of the asset and the lease obligations remain on the Company’s consolidated balance sheet. The Company also recorded a financing obligation, which is being amortized over the 40 year period of the lease (including option periods) and approximates the discounted value of minimum lease payments under the lease. Monthly lease payments are accounted for as principal and interest payments (at an approximate annual rate of 8.5%) on the recorded obligation. As of January 28, 2012 and January 29, 2011, the balance of the financing obligation was $51.0 million and $51.3 million, respectively, and was included on the Company’s consolidated balance sheet as a distribution center sale-leaseback obligation.

Note 9. Fair Value Measurements

The accounting guidance for fair value measurements prioritizes inputs used in measuring fair value. The tiers include:

Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2—Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable;

Level 3—Unobservable inputs which are supported by little or no market activity.

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The fair value of impaired long-lived assets and the initial estimates of store lease exit costs were measured at fair value on a nonrecurring basis using Level 3 inputs as defined in the fair value hierarchy. Fair value of long-lived assets and store lease exit costs are determined by estimating the amount and timing of net future cash flows (including rental expense for leased properties, sublease rental income, common area maintenance costs and real estate taxes) and discounting them using a risk-adjusted rate of interest. The Company estimates future cash flows based on its experience and knowledge of the market in which the store is located and, when necessary, uses real estate brokers.

Note 10. Income Taxes

The provision (benefit) for income taxes consists of the following:

	Fiscal Year Ended
(In thousands)	January 28, 2012		January 29, 2011		January 30, 2010
Current:
Federal	$	562	$	—	$	(12,981	)
State		992		876		243
Total current		1,554		876		(12,738	)
Deferred—Federal		—		—		—
Provision (benefit) for income taxes	$	1,554	$	876	$	(12,738	)

The differences between the U.S. federal statutory tax rate and the Company’s effective tax rate are as follows:

	Fiscal Year Ended
	January 28, 2012			January 29, 2011			January 30, 2010
U.S. federal statutory tax rate		35.0	%		35.0	%		(35.0	)%
State income taxes, including valuation allowance (net of U.S. federal income tax benefit)		6.2			33.2			(3.0	)
Wage and other tax credits		(4.1	)		—			—
Non-deductible expenses		0.5			2.5			0.1
Other		0.4			1.2			0.2
Valuation allowance		(29.4	)		(48.8	)		21.0
Effective income tax rate (benefit)		8.6	%		23.1	%		(16.7	)%

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Significant components of the Company’s deferred tax assets and liabilities are as follows:

(In thousands)	January 28, 2012					January 29, 2011
	Deferred Tax Assets			Deferred Tax Liabilities		Deferred Tax Assets			Deferred Tax Liabilities
Capitalized inventory costs	$	—		$	2,998	$	—		$	1,852
Trade discounts		—			271		—			1,970
Prepaid expenses		—			535		—			624
Deferred rent		8,541			—		10,374			—
Capital leases and facilities, and land subject to sale and leaseback		47,072			—		47,720			—
Lease rights		—			167		—			185
Depreciation		—			26,201		—			32,536
Credit and net operating loss carryforwards		47,325			—		53,570			—
Deductible reserves and other		11,341			—		12,010			—
State taxes		—			8,512		—			8,259
Subtotal		114,279			38,684		123,674			45,426
Valuation allowance		(75,595	)		—		(78,248	)		—
Total	$	38,684		$	38,684	$	45,426		$	45,426

At January 28, 2012, and at January 29, 2011, the Company had California state enterprise zone credit carryforwards of $9.0 million and $8.1 million, respectively, which have no expiration date but require taxable income in the enterprise zone to be realizable. The Company also had federal net operating loss carryforwards of $73.5 million (or $25.7 million tax effected) and $100.5 million (or $35.2 million tax effected), respectively. The federal net operating loss will begin expiring in 2026. State net operating loss carryforwards of $139.6 million at January 28, 2012 and $143.6 million at January 29, 2011 will expire between 2012 and 2030.

Section 382 of the Internal Revenue Code (“Section 382”) imposes limitations on a corporation’s ability to utilize its net operating losses (“NOL”) if it experiences an “ownership change.” In general terms, an ownership change results from transactions increasing the ownership of certain existing stockholders and, or, new stockholders in the stock of a corporation by more than 50 percentage points during a three year testing period. Any unused annual limitation may be carried over to later years, and the amount of the limitation may, under certain circumstances, be increased to reflect both recognized and deemed recognized “built-in gains” that occur during the sixty-month period after the ownership change. Based on our analysis to date, we have undergone an ownership change. The resulting limitation does not affect the Company’s ability to utilize its NOL for the year ended January 28, 2012. However, in future years the Company’s ability to utilize net operating losses will be limited. The “ownership change” that the Company experienced also imposes limitations on the Company’s California state enterprise zone credits (“EZ Credits”) carryforwards under Internal Revenue Code Section 383. The resulting limitation did affect the Company’s ability to utilize its EZ Credits for fiscal 2010 and the Company expects it will continue to be limited.

Significant management judgment is required to determine the provision for income taxes, deferred tax assets and liabilities and any valuation allowance to be recorded against deferred tax assets. Management evaluates all available evidence to determine whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. A valuation allowance is established to reduce the deferred tax assets to the amounts expected to be realized. In fiscal year 2011 the valuation allowance was decreased by $2.7 million, and in fiscal years 2010 and 2009, the valuation allowance was increased by $0.5 million and $16.0 million, respectively. The valuation allowance is subject to adjustment based on the Company’s assessment of its future taxable income and may be wholly or partially reversed in future years.

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A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	Fiscal Year Ended
(In thousands)	January 28, 2012			January 29, 2011			January 30, 2010
Unrecognized tax benefits—beginning balance	$	1,429		$	1,927		$	2,053
Gross increase/(decrease) for tax positions of prior years		741			(19	)		211
Gross increase/(decrease) for tax positions of current year		—			131			(45	)
Settlements		(1,865	)		(51	)		—
Lapse of statute of limitations		(271	)		(559	)		(292	)
Unrecognized tax benefits—ending balance	$	34		$	1,429		$	1,927

At January 28, 2012, January 29, 2011 and January 30, 2010, the Company had $34,000, $1.4 million and $1.9 million, respectively, in unrecognized tax benefits, the recognition of which would have an impact of $282,000, $282,000 and $316,000, respectively, on the Company’s income tax provision. At January 28, 2012, it is reasonably possible that the total amounts of unrecognized tax benefits would decrease by $705,000 within the next 12 months due to the expiration of statutes of limitations.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. At January 28, 2012, the Company had accrued $189,000 and $1,000, at January 29, 2011, the Company had accrued $178,000 and $1,000 and at January 30, 2010 the Company had accrued $177,000 and $6,000 for potential payment of interest and penalties, respectively.

As of January 28, 2012, the Company is subject to U.S. federal income tax examinations for tax years 2003 and forward, and is subject to state and local tax examinations for the tax years 2003 and forward.

Note 11. Equity and Stock Compensation Plans

OptionsAs of January 28, 2012, the Company had options outstanding under three stock option plans; the 1995 Stock Option Plan (“1995 Plan”), the 2004 Stock Plan (“2004 Plan”), and the 1996 Director Stock Option Plan (“Director Option Plan,” collectively, the “Company’s Stock Plans”) and as of January 28, 2012, there were 1,208,357 shares of commons stock available for future grant under the Company’s stock plans.

The 1995 Plan was terminated in November 2005 and succeeded by the 2004 Plan. Under the 1995 Plan, options are exercisable over 10 years and vest as determined by the Board of Directors, generally over three or four years.

The 2004 Plan was approved by the Board of Directors and shareholders in fiscal 2004 and was last amended by the shareholders in June 2009. Under the 2004 Plan, incentive stock options must be granted at fair market value as of the grant date and non-statutory options may be granted at 25% to 100% of the fair market value on the grant date. Options are exercisable over a maximum term of 10 years and vest as determined by the Board of Directors. The 2004 Plan also includes the ability to grant restricted stock, stock appreciation rights, performance shares, and deferred stock units.

The Director Option Plan was approved by the Board of Directors and shareholders in fiscal 1996, and was last amended by the shareholders in June 2011. The amendment during fiscal 2011 expanded the type of equity awards that can be made under the plan to also include full value awards such as deferred stock units. Options are exercisable over a maximum term of 10 years and vest as determined by the Board of Directors.

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The Company granted 769,000 options to purchase the Company’s common stock to its employees during fiscal 2011, compared to 836,500 common stock options granted to its employees and non-employee directors during fiscal 2010. At the end of fiscal 2011, unrecognized compensation cost related to the unvested portion of the Company’s stock option awards was $3.3 million, which is expected to be recognized over a weighted-average period of 2.7 years.

Deferred Stock UnitsDuring fiscal 2011, the Company granted 53,974 deferred stock units to its non-employee directors during the third quarter of fiscal 2011, compared to no deferred stock units granted during fiscal 2010. The Company’s deferred stock units are issued and measured at fair value on the date of grant and fully vest on the one year anniversary from the date of grant. At the end of fiscal 2011, unrecognized compensation cost related to the unvested portion of the Company’s deferred stock units was $0.2 million, which is expected to be recognized over a weighted-average period 0.5 years.

A summary of activity under the Company’s option plans is set forth below:

	Options			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value (In thousands)
Outstanding, January 29, 2011		3,736,865		$	10.27		4.0	$	12,624
Granted		769,000		$	10.55
Exercised		(290,550	)	$	1.92
Cancelled or Forfeited		(151,626	)	$	9.53
Expired		(154,364	)	$	22.33
Outstanding, January 28, 2012		3,909,325		$	10.51		3.7	$	22,784
Vested or expected to vest, January 28, 2012		3,624,520		$	10.65		3.5	$	21,434
Exercisable, January 28, 2012		2,227,700		$	12.95		2.3	$	12,292

The aggregate intrinsic value in the table above is the difference between the market value of the Company’s common stock on the last day of business for the period indicated and the exercise price of in-the-money shares. Cash received as a result of stock options exercised in fiscal 2011 was $0.6 million, and the total intrinsic value of stock options exercised in fiscal 2011 was $2.0 million.

The following table summarizes information about the weighted-average remaining contractual life (in years) and the weighted-average exercise prices for stock options both outstanding and exercisable as of January 28, 2012:

	Options Outstanding						Options Exercisable
Actual Range of Exercise Prices	Number Outstanding		Remaining Life (Yrs.)		Weighted- Average Exercise Price		Number of Shares		Weighted- Average Exercise Price
$  0.00 – $  3.00		513,500		4.1	$	0.95		508,250	$	0.94
3.01 –     4.00		602,325		3.1		3.61		440,950		3.61
4.01 –     5.00		824,500		5.2		4.79		66,000		4.21
8.00 –   10.00		221,500		2.3		9.38		221,500		9.38
10.01 –   15.00		756,500		6.1		10.55		—		—
15.01 –   25.00		608,500		0.8		19.42		608,500		19.42
25.01 –   38.50		382,500		1.2		32.93		382,500		32.93
$  0.00 – $38.50		3,909,325		3.7	$	10.51		2,227,700	$	12.95

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Share-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that are ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Currently, the Company’s share-based compensation relates to stock options and deferred stock units. The Company recognized share-based compensation expense of $3.0 million in fiscal 2011 compared to $1.5 million in fiscal 2010 and $1.2 million in fiscal 2009. Share-based compensation expense is included as a component of selling, general and administrative expenses. At the end of fiscal 2011, unrecognized compensation cost related to the unvested portion of the Company’s stock option awards and deferred stock units was $3.3 million, and $0.2 million, respectively, which is expected to be recognized over a weighted-average period of 2.7 years and 0.5 years, respectively.

The following table presents the weighted-average fair value per share of common stock options granted during fiscal 2011, 2010 and 2009 and the weighted-average assumptions used in the Black-Scholes-Merton option pricing model to value the stock options on the date of the grant:

	Fiscal Year Ended
	January 28, 2012			January 29, 2011			January 30, 2010
Weighted-average fair value per share of options granted	$	7.13		$	3.37		$	0.57
Expected dividend rate		—			—			—
Volatility		90.0	%		94.1	%		83.3	%
Risk-free interest rate		2.0	%		2.0	%		1.8	%
Expected lives (years)		4.5			4.5			4.5

The fair value of each option grant was estimated using the Black-Scholes option-pricing model. The Company used its historical stock price volatility for a period approximating the expected life as the basis for its expected volatility assumption. The expected life of stock options represents the weighted-average period the stock options are expected to remain outstanding. During fiscal 2011, the Company determined that there was sufficient historical exercise data to adequately estimate the expected life and used its historical plan data for the related Black-Scholes model input. The Company had previously used the simplified method to determine the expected life for its stock options. The expected dividend yield assumption is based on the Company’s history of zero dividend payouts and the expectation that no dividends will be paid in the foreseeable future. The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with a term equivalent to the expected life of the stock option.

Note 12. Employee Benefit Plans

The Company has a 401(k) plan for employees who meet certain service and age requirements. During fiscal 2011, participants could contribute the lesser of 60% of their annual base salary or $16,500, and participants age 50 or older could contribute an additional catch-up deferral amount of up to $5,500 per year. Effective March 1, 2010, the Company set a 3% deferral limit on the 401(k) plan for highly compensated employees (an employee who in the preceding year (look-back year) had compensation in excess of $110,000 as indexed (IRC Section 414(q)(3)). Effective March 1, 2009, the Company suspended the employer matching. Prior to this, the Company matched 100% of employee contributions up to the first 3% of base salary and matched 50% of employee contributions in excess of 3% of base salary up to a maximum of 5% of base salary. The Company did not make any contributions in fiscal 2011 or fiscal 2010 and contributed approximately $116,000 in fiscal 2009.

Note 13. Commitments and Contingencies

The Company is involved in litigation, claims and assessments incidental to its business, the disposition of which is not expected to have a material effect on the Company’s financial position or results of operations. It is

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possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in the Company’s assumptions related to these matters. The Company accrues its best estimate of the probable cost for the resolution of claims. When appropriate, such estimates are developed in consultation with outside counsel handling these matters and are based upon a combination of litigation and settlement strategies. To the extent additional information arises or the Company’s strategies change, it is possible that the Company’s best estimate of its probable liability in these matters may change.

Note 14. Earnings/(Loss) per Share

Basic earnings/(loss) per share (“EPS”) is computed by dividing net income/(loss) by the weighted-average number of common shares outstanding for the period. Diluted earnings/(loss) per share is similarly computed, and includes the effect, if dilutive, of the Company’s weighted-average number of stock options outstanding and shares of deferred stock units.

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:

Fiscal Year Ended	Basic EPS			Effect of Dilutive Stock Options and Deferred Stock Units (treasury stock method)			Diluted EPS
January 28, 2012
Shares		22,263			1,094			23,357
Earnings	$	0.74			($0.03	)	$	0.71
January 29, 2011
Shares		22,087			534			22,621
Earnings	$	0.13		$	0.00		$	0.13
January 30, 2010
Shares		22,087			—			22,087
Loss		($2.87	)	$	0.00			($2.87	)

Certain outstanding stock options were not included in the computation of diluted earnings per share because the effect would be anti-dilutive. For the fiscal years ended January 28, 2012, January 29, 2011, and January 30, 2010 there were anti-dilutive options of 1,942,013; 1,988,586 and 3,129,007, respectively.

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Note 15. Quarterly Information (unaudited)

The following tables set forth the Company’s unaudited quarterly operating results for the eight most recent quarterly periods:

	Fiscal Quarters Ended
(In thousands, except per share data)	April 30, 2011			July 30, 2011			October 29, 2011			January 28, 2012
Net sales	$	199,710		$	197,949		$	201,862		$	364,312
Gross profit		63,392			59,017			62,136			125,080
Net income/(loss) from continuing operations		(3,035	)		(7,762	)		(8,246	)		36,754
Loss from discontinued operations		(331	)		(284	)		(345	)		(253	)
Net income/(loss)		(3,366	)		(8,046	)		(8,591	)		36,501
Net income/(loss) per weighted-average share from continuing operations
Basic	$	(0.14	)	$	(0.35	)	$	(0.37	)	$	1.64
Diluted	$	(0.14	)	$	(0.35	)	$	(0.37	)	$	1.56
Net loss per weighted-average share from discontinued operations
Basic	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.01	)
Diluted	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.01	)
Net income/(loss) per weighted-average share
Basic	$	(0.15	)	$	(0.36	)	$	(0.39	)	$	1.63
Diluted	$	(0.15	)	$	(0.36	)	$	(0.39	)	$	1.55

	Fiscal Quarters Ended
(In thousands, except per share data)	May 1, 2010			July 31, 2010			October 30, 2010			January 29, 2011
Net sales	$	188,637		$	191,795		$	194,569		$	341,563
Gross profit		57,528			60,673			59,780			112,964
Net income/(loss) from continuing operations		(10,085	)		(6,619	)		(7,397	)		28,775
Loss from discontinued operations		(226	)		(364	)		(948	)		(278	)
Net income/(loss)		(10,311	)		(6,983	)		(8,345	)		28,497
Net income/(loss) per weighted-average share from continuing operations
Basic	$	(0.46	)	$	(0.30	)	$	(0.34	)	$	1.30
Diluted	$	(0.46	)	$	(0.30	)	$	(0.34	)	$	1.24
Net loss per weighted-average share from discontinued operations
Basic	$	(0.01	)	$	(0.02	)	$	(0.04	)	$	(0.01	)
Diluted	$	(0.01	)	$	(0.02	)	$	(0.04	)	$	(0.01	)
Net income/(loss) per weighted-average share
Basic	$	(0.47	)	$	(0.32	)	$	(0.38	)	$	1.29
Diluted	$	(0.47	)	$	(0.32	)	$	(0.38	)	$	1.23

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the period covered by this Annual Report. Based on this evaluation, the Company’s principal executive officer and its principal financial officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that information it is required to disclose in reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to its management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure, and that such information 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 the Company’s internal control over financial reporting that occurred during the quarter ended January 28, 2012 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Securities and Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Our management conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. A system of internal control over financial reporting has inherent limitations and may not prevent or detect misstatements. Further, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions and that the degree of compliance with policies or procedures may change over time. Based on this evaluation, our management concluded that the Company’s internal control over financial reporting was effective as of January 28, 2012.

Our independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report on our internal control over financial reporting. Their report is included on page 29 in Item 8 of this Annual Report on Form 10-K.

ITEM 9B. OTHER INFORMATION

None

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PART III

Information called for by Part III (Items 10, 11, 12, 13 and 14) of this Annual Report on Form 10-K has been omitted as the Company intends to file with the SEC no later than May 29, 2012; a definitive Proxy Statement pursuant to Regulation 14A promulgated under the Exchange Act. Such information will be set forth in such Proxy Statement and is incorporated herein by reference.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE MATTERS

Information regarding (i) the Company’s directors, (ii) compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, as well as (iii) any material changes to procedures by which security holders may recommend nominees to the Company’s board of directors, standing audit committee and audit committee financial expert are incorporated herein by reference to the sections entitled “Proposal One: Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” and “Corporate Governance,” respectively, in our Proxy Statement for the Company’s 2012 Annual Meeting of Shareholders. The information required by this item concerning executive officers is incorporated herein by reference to the section entitled “Executive Officers of the Registrant” at the end of Part I of this Annual Report on Form 10-K.

The Company has adopted aCode of Ethics for Principal Executive and Senior Financial Officers, which is listed as an exhibit to this Annual Report on Form 10-K. The policy applies to the Company’s Chief Executive Officer and the Chief Financial Officer.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference to the sections entitled “Compensation Discussion and Analysis and Executive Compensation,” “Compensation Tables,” “Compensation Committee Report,” “Compensation Committee Interlocks and Insider Participation,” and “Corporate Governance—Director Compensation,” each of which is in the Proxy Statement for the Company’s 2012 Annual Meeting of Shareholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

The information required by this item is incorporated herein by reference to the sections entitled “Compensation Tables” and “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement for the Company’s 2012 Annual Meeting of Shareholders.

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The following table sets forth information as of January 28, 2012 about our common stock that may be issuable upon the exercise of options and rights granted to employees, consultants and members of our Board of Directors under all existing equity compensation plans:

	(a)		(b)		(c)
	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by shareholders
1995 Stock Option Plan(1)		318,000	$	30.12		—
1996 Director Option Plan		485,000		14.75		295,732
2004 Stock Plan		3,106,325		7.84		912,625
Equity compensation plans not approved by shareholders		—		—		—
Total		3,909,325	$	10.51		1,208,357

(1) The 1995 Stock Option Plan was replaced by the 2004 Stock Plan in July 2005. 100,000 remaining shares available for grant under the 1995 Stock Option Plan were transferred to the 2004 Stock Plan and the 1995 Stock Option Plan was terminated for any new grants. Up to 800,000 shares subject to outstanding options under the 1995 Stock Option Plan may be transferred to the 2004 Stock Plan if they expire without being exercised and as of January 28, 2012, the Company had transferred all 800,000 shares.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Certain information required by this item is incorporated herein by reference to the section entitled “Certain Relationships and Related Transactions” and “Corporate Governance—Director Compensation” in the Proxy Statement for the Company’s 2012 Annual Meeting of Shareholders.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is incorporated herein by reference to the section “Audit and Related Fees for Fiscal Years 2011 and 2010” in the Proxy Statement for the Company’s 2012 Annual Meeting of Shareholders.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)1. Financial Statements: See “Index to Consolidated Financial Statements” in Part II, Item 8 on page 28 of this Form 10-K.

    2. Financial Statement Schedules:

Financial statement schedules of Cost Plus, Inc. have been omitted from Item 15 because they are not applicable or the information is included in the financial statements or notes thereto.

(b) List of Exhibits:

The following exhibits are filed herewith or incorporated by reference.

Exhibit No.	Description of Exhibits
3.1	Amended and Restated Articles of Incorporation as filed with the California Secretary of State on April 1, 1996, incorporated by reference to Exhibit 3.1 to the Form 10-K filed for the year ended February 1, 1997.
3.1.1	Certificate of Amendment of Restated Articles of Incorporation as filed with the California Secretary of State on February 25, 1999, incorporated by reference to Exhibit 3.1 to the Form 10-Q filed for the quarter ended May 1, 1999.
3.1.2	Certificate of Amendment of Restated Articles of Incorporation as filed with the California Secretary of State on September 24, 1999, incorporated by reference to Exhibit 3.1.2 of the Form 10-K filed for the year ended January 29, 2000.
3.2	Amended and Restated By-laws dated June 23, 2011, incorporated by reference to Exhibit 3.2 to the Form 10-Q filed for the quarter ended July 30, 2011.
10.1	Form of Indemnification Agreement, as amended and restated, between the Company and each of its directors and officers, incorporated by reference to Exhibit 10.1 to the Form 10-Q filed for the quarter ended July 29, 2006.
10.2	Lease agreement between the Company and Square I, LLC for certain Corporate office space located in Oakland, California, incorporated by reference to Exhibit 10.1 to the Form 10-Q filed for the quarter ended October 31, 1998.
10.3	Amended and Restated Credit Agreement dated January 3, 2011 between Cost Plus, Inc. and its wholly owned subsidiaries Cost Plus of Texas, Inc., Cost Plus of Idaho, Inc., and Cost Plus Management Services, Inc., and Bank of America, N.A., administrative agent, collateral agent, swing line lender, and L/C issuer, incorporated by reference to Exhibit 10.1 of the Form 8-K filed on January 7, 2011.
10.4	Purchase and Sale Agreement between Cost Plus, Inc. and Inland Real Estate Acquisitions, Inc., as purchaser, incorporated by reference to Exhibit 10.2 of the Form 10-Q filed for the quarter ended April 29, 2006.
10.4.1	Lease Agreement between Cost Plus, Inc., as lessee, and Inland Western Stockton Airport Way, L.L.C. (“First Landlord”), as lessor, dated as of April 7, 2006, incorporated by reference to Exhibit 10.2.1 of the Form 10-Q filed for the quarter ended April 29, 2006.
10.4.2	Lease agreement between Cost Plus, Inc., as lessee, and Inland Western Stockton Airport Way II, LLC., as lessor, dated as of July 31, 2007, incorporated by reference to Exhibit 10.1 of the Form 10-Q filed for the quarter ended August 4, 2007.
10.5	Purchase and Sale Agreement and Joint Escrow Instructions dated October 26, 2006 between Cost Plus, Inc. and Inland Real Estate Acquisitions, Inc., as purchaser, incorporated by reference to Exhibit 10.1 of the Form 10-Q filed on October 28, 2006.

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Exhibit No.	Description of Exhibits
10.5.1	Lease Agreement between Cost Plus, Inc., as lessee, and Inland RI Holding, LLC, Bruning Holding, LLC, JM 55th Holding LLC, 55th Holding LLC, Rockford Bruning Holding, LLC, Commons Holding, LLC, Deer Park Holding, LLC, BA WR Holding, LLC, Hartland Holding, LLC, as lessor, dated as of December 21, 2006, incorporated by reference to Exhibit 10.7.1 of the Form 10-K filed for the year ended February 3, 2007.
10.6¨	Cost Plus, Inc. 1996 Director Option Plan as amended June 23, 2011, incorporated by reference to Exhibit 10.1 to the Form 10-Q filed for the quarter ended July 30, 2011.
10.6.1¨	Form of Stock Option Agreement, 1996 Director Option Plan used for grants prior to fiscal 2008, incorporated by reference to Exhibit 10.4 to the Form 10-Q filed for the quarter ended July 31, 1999.
10.6.2¨	Form of Stock Option Agreement, 1996 Director Option Plan used for grants beginning in fiscal 2008, incorporated by reference to Exhibit 10.8.2 of the Form 10-K for the year ended February 2, 2008.
10.6.3¨	Form of Deferred Stock Unit Agreement, 1996 Director Option Plan, incorporated by reference to Exhibit 10.3 to the Form 10-Q filed for the quarter ended July 30, 2011.
10.7¨	Cost Plus, Inc. 2004 Stock Plan, as amended June 18, 2009, incorporated by reference to Exhibit 4.1 of the Registration Statement on Form S-8 filed on August 5, 2009.
10.7.1¨	Form of Option Agreement, 2004 Stock Plan used for grants prior to fiscal 2008, incorporated by reference to Exhibit 10.2 of the Form 8-K filed on November 23, 2004.
10.7.2¨	Form of Option Agreement, 2004 Stock Plan used for grants beginning in fiscal 2008, incorporated by reference to Exhibit 10.9.2 of the Form 10-K filed for the year ended February 2, 2008.
10.8¨	Form of Notice of Grant of Performance Shares and Performance Share Agreement under the 2004 Stock Plan, incorporated by reference to Exhibit 10.1 of the Form 8-K filed on April 21, 2006.
10.9¨	Amended and Restated Employment Agreement dated March 12, 2008, between Cost Plus, Inc. and Barry J. Feld, incorporated by reference to Exhibit 10.11 of the Form 10-K filed for the year ended February 2, 2008.
10.9.1¨	Amendment to Barry J. Feld Amended and Restated Employment Agreement dated December 15, 2008, between Cost Plus, Inc. and Barry J. Feld, incorporated by reference to Exhibit 10.10.1 of the Form 10-K filed for the year ended January 31, 2009.
10.10¨	Eighth Amended and Restated Employment Severance Agreement dated August 3, 2011, between Cost Plus, Inc. and Jane L. Baughman, incorporated by reference to Exhibit 10.5 of the Form 10-Q filed for the quarter ended July 30, 2011.
10.11¨	Fourth Amended and Restated Employment Severance Agreement dated August 3, 2011 between Cost Plus, Inc. and Jeffrey A. Turner, incorporated by reference to Exhibit 10.6 of the Form 10-Q filed for the quarter ended July 30, 2011.
10.12¨	Fiscal 2011 Management Incentive Plan, incorporated by reference to Exhibit 10.1 of the Form 10-Q filed for the quarter ended April 30, 2011.
10.13¨	Cost Plus, Inc. Executive Performance Incentive Plan dated June 23, 2011, incorporated by reference to Exhibit 10.2 to the Form 10-Q filed for the quarter ended July 30, 2011.
10.14¨	Cost Plus, Inc. Option Acceleration Agreement dated June 23, 2011, incorporated by reference to Exhibit 10.4 to the Form 10-Q filed for the quarter ended July 30, 2011.

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Exhibit No.	Description of Exhibits
10.15	Confidentiality and Standstill Agreement, dated as of January 7, 2009, between Cost Plus, Inc., Warren A. Stephens and Stephens Investments Holdings LLC, incorporated by reference to Exhibit 10.1 of the 8-K filed on January 7, 2009.
10.16	Summary of Non-Employee Director Compensation, incorporated by reference to Exhibit 10.7 to the Form 10-Q filed for the quarter ended July 30, 2011.
14	Code of Business Conduct and Ethics, incorporated by reference to Exhibit 14 of the Form 10-K filed for the year ended January 29, 2005.
14.1	Code of Ethics for Principal Executive and Senior Financial Officers, incorporated by reference to Exhibit 14 of the Form 10-K/A filed for the year ended January 29, 2005.
21	List of Subsidiaries of the Company, incorporated by reference to Exhibit 21 of the Form 10-K filed for the year ended February 3, 2007.
23*	Consent of Independent Registered Public Accounting Firm.
31.1*	Certification of the Chief Executive Officer of the Registrant 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 Registrant 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 Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS†	XBRL Instance Document
101.SCH†	XBRL Taxonomy Extension Schema Document
101.CAL†	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF†	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB†	XBRL Taxonomy Extension Label Linkbase Document
101.PRE†	XBRL Taxonomy Extension Presentation Linkbase Document

¨ Management compensatory plan, contract or arrangement.

* Filed herewith.

† The financial information contained in these XBRL documents is unaudited and is furnished, not filed with the Securities and Exchange Commission.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	COST PLUS, INC.
Date: April 10, 2012	By:	/S/    BARRY J. FELD
		Barry J. Feld
		Chief Executive Officer and President

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Barry J. Feld and Jane L. Baughman as his or her attorney-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/    BARRY J. FELD         Barry J. Feld	Director, Chief Executive Officer and President (Principal Executive Officer)	April 10, 2012
/s/    JANE L. BAUGHMAN         Jane L. Baughman	Executive Vice President, Chief Financial Officer (Principal Financial Officer)	April 10, 2012
/s/    CHARLES MILTNER         Charles Miltner	Vice President, Controller (Principal Accounting Officer)	April 10, 2012
/s/    JOSEPH H. COULOMBE         Joseph H. Coulombe	Director	April 10, 2012
/s/    CLIFFORD J. EINSTEIN         Clifford J. Einstein	Director	April 10, 2012
/s/    MARK R. GENENDER         Mark R. Genender	Director	April 10, 2012
/s/    DANNY W. GURR         Danny W. Gurr	Director	April 10, 2012
/s/    JOHN C. POUND         John C. Pound	Director	April 10, 2012
/s/    KIM D. ROBBINS         Kim D. Robbins	Director	April 10, 2012
/s/    FREDRIC M. ROBERTS         Fredric M. Roberts	Director	April 10, 2012
/s/    KENNETH T. STEVENS         Kenneth T. Stevens	Director, Chairman of the Board	April 10, 2012

57