Cost Plus Weaves Wicker Into Ninefold Gain to Lead 2010 Nasdaq

The best performer on the technology- heavy Nasdaq Stock Market last year doesn’t sell software, Internet ads or computers. Instead, it hawks hand-crafted door knobs and embroidered pillows.

Cost Plus Inc., the Oakland, California-based home-goods retailer, gained 851 percent in 2010, besting the other 2,673 members of the Nasdaq Composite Index, including Silicon Valley titans Apple Inc., Oracle Corp. and Google Inc.

The company is benefiting from consumers increasing their spending on goods for the home as the economy recovers. U.S. household purchases rose 4.4 percent last quarter, the most since early 2006. Rising incomes and a cut in payroll taxes this year will probably continue to drive demand.

Cost Plus is poised to return to profit after four years of losses by stocking its stores with cheaper, artisanal items that the previous management team abandoned during the housing boom, said Barry Feld, president and chief executive officer. The company had tried to shift to more expensive merchandise.

“We had price credibility for decades, and so when we walked away from it, it really hit our core customer hard,” Feld said in an interview at the company’s headquarters. “Had it gone another year, I don’t know if we could have brought the company back from the brink.”

Cost Plus sells both eclectic home furnishings and gourmet food, competing with Bed Bath & Beyond Inc., Crate & Barrel, Pier 1 Imports Inc., Trader Joe’s Co. and Williams-Sonoma Inc., which owns Pottery Barn. Cost Plus wasn’t the only retailer to see a boost as the economy recovered. The Standard & Poor’s 500 retailing index rose 24 percent last year.

Pier 1 shares, which finished 2008 at 37 cents, began 2011 at $10.50. Bed Bath & Beyond almost doubled during the same time, and Williams-Sonoma more than quadrupled.

Paying Down Debt

“Throughout the last 10 years, U.S. consumers were willing to run up credit-card debt,” said Greg Girard, program director of Retail Merchandise Strategies at IDC Retail Insights. “They’re not doing that now. In fact, they’re paying down debt, which makes the recent performances by these companies all the more remarkable.”

Cost Plus was founded more than 50 years ago by William Amthor, a wicker-furniture importer who sold his wares for 10 percent more than he paid for them. He opened his first shop at San Francisco’s Fisherman’s Wharf in 1958. By 1996, when the company first sold shares to the public, it had grown to 50 locations in 10 states.

Expensive Furniture

The stock peaked at $47.72 in 2003, when the company had expanded to 200 stores. At the time, Cost Plus envisioned growing to 600 locations. In a bid to boost sales, it added more expensive furniture, with some items costing more than $1,000. Sales rose 13 percent to $908.6 million in 2004. The strategy eventually backfired as consumers visited stores less frequently and complained about rising costs, Feld said.

“We had $1,500 leather sofas in the store,” he said. “We were in the $15 soap business. Our customers don’t buy $15 soap.”

The chain, which had been what Feld describes as a housewares store with some furniture, became the opposite -- a furniture store with some housewares. Feld, who has served on the board for more than a decade and was named to his current position in October 2005, proposed to reverse some of the changes immediately.

Then came the recession. The economy shrank 4.1 percent from late 2007 to mid-2009, the most in any downturn since the 1930s, according to the Commerce Department.

Years of Losses

Cost Plus fell into the red, and sales declined for the first time since the company went public. By 2008, the shares had plummeted to less than $1.

In June of that year, Pier 1 offered to buy the company for about $88 million, or $4 a share. Cost Plus rejected the offer, saying it wasn’t “attractive.” By February 2009, the stock had reached its nadir of 55 cents.

The company began to adapt to the changing economic climate, saying in January 2009 that it would close 26 underperforming stores of the 296 total in 33 states. Sales at stores opened at least a year declined 7 percent in 2009.

Things improved last year. Holiday sales rose to $277.5 million, a 7 percent gain at stores opened at least a year. The company said it saw an increase in both customers and the amount they spent. Cost Plus is forecast to post its first annual profit since 2005 when it reports fourth-quarter results in March, according to Bloomberg data.

Household Knickknacks

During a walkthrough of the company’s recently revamped store in Oakland’s Jack London Square, Feld pointed to areas of jewelry accessories, wicker baskets, paper goods and accent chairs.

“If you had come into this store with me, in early 2007, basically this entire whole center of the floor would have been a sea of sofas and dining rooms,” he said. “We exited the backscratcher business -- I know that sounds sort of hokey -- but these little areas where you’re doing hundreds and hundreds of thousands of dollars of business --- we were always the sum of these unique little parts.”

Cost Plus shares rose last year as high as $12.88 in December and closed at $9.70. The last time the stock traded that high was in May 2007, before the recession began.

Less Competition

“People are spending again on home items, and the competition is much less -- you had a lot of store closures,” said Braden Leonard, whose Zionsville, Indiana-based BML Capital Management owns 5.4 percent of Cost Plus’s shares. “It’s not rocket science.”

Warren Stephens, Cost Plus’s largest shareholder with a 13 percent stake, declined to comment. The company’s second-largest investor, Red Mountain Capital Partners, holds 12.5 percent and is run by Willem Mesdag, who serves on Cost Plus’s board. Mesdag also declined to comment.

Cost Plus’s return from its near-death experience has included some bumps in the road. Its shares fell more than 11 percent last month, even after a holiday boost, and closed Feb. 4 at $8.60. The stock’s gain over the past year now ranks second among Nasdaq Composite members.

Even with a sluggish economy and unemployment at 9 percent, Feld is confident the company has worked its way out of trouble.

“Because we’ve aligned ourselves to where our customer’s head is at, and we’re playing into the trends of the future, we’re nicely positioned,” he said. “We feel like we’re in for a pretty solid year.”

To contact the reporter on this story: Ryan Flinn in San Francisco at rflinn@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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Cost Plus CEO Barry Feld

Mike Kepka/San Fransico Chronicle via Bloomberg

Cost Plus chief executive officer Barry Feld stands for a portrait in the Jack London Square in Oakland, California.

Cost Plus chief executive officer Barry Feld stands for a portrait in the Jack London Square in Oakland, California. Photographer: Mike Kepka/San Fransico Chronicle via Bloomberg

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Cost Plus Weaves Wicker Into Ninefold Gain to Lead

Mike Kepka/San Francisco Chronicle via Bloomberg

Susan Walsh tests a recliner at the Cost Plus Store in Jack London Square on Oakland, California.

Susan Walsh tests a recliner at the Cost Plus Store in Jack London Square on Oakland, California. Photographer: Mike Kepka/San Francisco Chronicle via Bloomberg

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Cost Plus Weaves Wicker Into Ninefold Gain to Lead

Mike Kepka/San Francisco Chronicle via Bloomberg

A Cost Plus customer walks past a collection of wall decorations and home furnishings in the Jack London Square store in Oakland, California.

A Cost Plus customer walks past a collection of wall decorations and home furnishings in the Jack London Square store in Oakland, California. Photographer: Mike Kepka/San Francisco Chronicle via Bloomberg

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Cost Plus Weaves Wicker Into Ninefold Gain to Lead

Mike Kepka/San Francisco Chronicle via Bloomberg

A recent line of imported jewelry on display in the Jack London Square in Oakland, California.

A recent line of imported jewelry on display in the Jack London Square in Oakland, California. Photographer: Mike Kepka/San Francisco Chronicle via Bloomberg