ITEM 1. BUSINESS
The Company
Cost Plus, Inc. (“Cost Plus World Market” or “the Company”) is a leading specialty retailer of casual home furnishings and entertaining products. As of January 31, 2004, the Company operated 204 stores under the name “World Market,” “Cost Plus World Market,” “Cost Plus” or “Cost Plus Imports” in 26 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 and other specialty retailers.
Cost Plus World Market’s expansion strategy is to open stores primarily in metropolitan and suburban markets that can support multiple stores and enable the Company to achieve advertising, distribution and operating efficiencies. The Company may also enter mid-size markets which can support one or two stores that the Company believes can meet its profitability criteria. The Company’s stores are located predominantly in high traffic metropolitan and suburban locales, often near major malls. In fiscal 2003, the Company opened a total of 31 stores, including 21 in the existing markets of the San Francisco Bay Area, Los Angeles, Modesto, Sacramento and Stockton, CA; Reno, NV; Charlotte, NC; Denver, CO; Kansas City, MO; Atlanta, GA; Grand Rapids, MI; Chicago, IL; Minneapolis and St. Paul, MN; Houston and Dallas, TX and 10 in the new markets of Rockford, IL; Colorado Springs, CO; Richmond, VA; Chico and Monterey CA; Billings, MT; Corpus Christi, TX; Charleston, SC and Jacksonville, FL. In addition, to opening 31 new stores, the Company closed two stores, one each in Modesto and Walnut Creek, CA in fiscal 2003.
Available Information
The Company’s Internet website address is http://www.worldmarket.com. Since February 26, 2003, the Company has made available on 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 Exchange Act as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the SEC.
Merchandising
Cost Plus World Market’s merchandising strategy is to offer customers a broad selection of distinctive items related to the theme of casual home furnishing and entertaining.
Products. The Company believes its distinctive and unique merchandise differentiates the Company from other retailers. Many of Cost Plus World Market’s products are proprietary or private label, often incorporating the Company’s own designs, “World Market” brand name or other brand names exclusive to the Company, quality standards and specifications typically not available at department stores and other specialty retailers. In addition to strengthening the stores’ product offering, proprietary and private label goods typically offer higher gross margins than branded goods. A significant portion of Cost Plus World Market’s products are made abroad in approximately 70 countries, and many of these goods are handcrafted by local artisans. The Company’s product offerings are designed to provide solutions to customers’ casual living and home entertaining needs. The offerings include home decorating items such as furniture, rugs, pillows, lamps, window coverings, frames and baskets.
Cost Plus World Market’s furniture products include ready-to-assemble living and dining room pieces, unusual handcrafted case goods and occasional pieces, as well as outdoor furniture made from a variety of materials such as rattan, hardwood and wrought iron. The Company also sells a number of tabletop and kitchen items including glassware, ceramics, textiles and cooking utensils. Kitchen products offer the casual gourmet an assortment of products organized around a variety of themes such as baking, food preparation, barbeque and international dining.
Cost Plus World Market offers a number of gift and decorative accessories, including collectibles, cards, wrapping paper and Holiday and other seasonal items. Because many of the gift and collectible items come from around the world, they contribute to the exotic atmosphere of the stores.
Cost Plus World Market also offers its customers a wide selection of gourmet foods and beverages, including wine, microbrewed and imported beer, coffee, tea and bottled 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. Consumable products, particularly beverages, generally have lower margins than the Company’s average. Gourmet foods include packaged products from around the world and seasonal items that relate to “old world” holidays and customs. Packaged snacks, candy and pasta are displayed in open barrels and crates. All food items typically have a shelf life of six months or longer.
The Company classifies sales into the home furnishings and consumables product lines with sales for the prior three years for these categories as follows:
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 regularly marks down retail prices and eliminates items that do not meet its turnover expectations.
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. 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 16,000 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 unobstructed 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. The “power” aisle, where bulk displays highlight sharply priced items, leads the customer through the store into the different product areas. The Company has a seasonal shop located in the heart of the store to feature seasonal products in themes, such as the Holiday shop, back to school, 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 free standing displays are changed frequently. Approximately 2,000 square feet of back office and stock space is included in the total square footage, which averages about 18,300 square feet.
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, for example, by displaying chairs arranged on a wall and hanging rugs 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 also believes that once in the store, its customers often spend additional time shopping and browsing and purchasing more items than they originally intended.
Pricing. Cost Plus World Market offers quality products at competitive prices. The Company complements its competitive everyday prices with 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 which is responsible for establishing the assortment of inventory within its merchandise classifications each season, including integrating 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. The Company’s buyers communicate with district and store managers and use the Company’s management information systems to tailor the merchandise mix of individual stores and to better ensure that in-stock availability will be maintained in accordance with the specific requirements of each store.
Advertising
The Company advertises through weekly promotional advertisements in major daily newspapers and on the radio. The Company’s approach is to regionalize its advertising and use the most efficient media mix within each individual market. The Company uses full color tabloids and color or black and white newspaper advertisements to highlight product offerings. For new store grand openings, the Company uses a combination of newspaper and radio advertisements. The Company also markets to its customers on a monthly basis via e-mail.
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 1,800 suppliers and no supplier represented over 9% of total purchases in the fiscal year ended January 31, 2004. A significant portion of Cost Plus World Market’s products are made abroad in approximately 70 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 any 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 a free-on-board shipping point 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 controlled 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. Any significant interruption in the operation of these facilities would have a material adverse effect on the Company’s financial position and results of operations.
Management Information Systems
Each of the Company’s stores is linked to the Cost Plus World Market headquarters in Oakland, California through a point-of-sale system and frame relay data network that interfaces with an IBM AS/400 computer. The Company’s information systems keep records, which are updated daily, of each merchandise item sold in each store, as well as financial, sales and inventory information. The point-of-sale 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.
Purchasing operations are facilitated by the use of computerized merchandise information systems which allow the Company to analyze product sell-through and assist the buyers in making merchandise decisions. The Company’s central replenishment system includes SKU and store-specific, “model stock” logic which enables the Company to maintain adequate stock levels on basic goods in each location. The Company believes its centralized purchasing system has helped it to optimize in-store inventory levels and improve in-stock conditions.
The Company uses several other management information and control systems to direct its operations and finances. These computerized systems are designed to ensure the integrity of the Company’s inventory, allow the merchandising staff to reprice merchandise, process payroll, pay bills, control cash, maintain fixed assets and track promotions, throughout all of the Company’s stores. The Company’s distribution operations use systems to receive, locate, pick and ship inventory to stores. The Company believes that these systems allow for higher operating efficiency and improve profitability.
Additional systems also 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 the 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 specialty retailers as Bed, Bath & Beyond, Linens n’ Things, Crate & Barrel, Pottery Barn, Michaels Stores, Pier 1 Imports, Trader Joe’s and Williams-Sonoma. Most specialty retailers tend to have higher prices and a more narrow 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, suitable retail locations and qualified management personnel.
Employees
As of January 31, 2004, the Company had approximately 2,254 full-time and approximately 3,275 part-time employees. Of these, approximately 4,825 were employed in the Company’s stores and approximately 704 were employed in the distribution centers and corporate office. The Company regularly supplements its work force with temporary staff, especially in the fourth quarter of each year, to service increased customer traffic during the peak Holiday season. Employees in 12 stores in Northern California are covered by a collective bargaining agreement which expires on May 31, 2008. 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 “Aaku”, “Asian Passage”, “Atacama with logo” and “Atacama” logo, “Castello Del Lago”, “Cost Plus”, “Cost Plus World Market”, “Crandall Brooks”, “Credo”, “Donaletta with logo” and “Donaletta” logo, “Electric Reindeer” and “Electric Reindeer” logo, “Marche du Monde with logo” and “Marche du Monde” logo, “Market Classics”, “Maui Morning”, “Mercado Del Mundo”, “Praline Perk”, “Seacliff” and “Seacliff” logo, “Soiree”, “Texas Turtle”, “Where You Can Afford To Be Different” and “World Market” marks with the United States Patent and Trademark Office on the Principal register. The Company has applied to register the following marks with the United States Patent and Trademark Office on the Principal register: “Crossroads” and “Villa Vitale”. The Company has secured California state registrations of its “Crossroads” and “Seacliff” trademarks. In Canada, the Company has applied to register its “Cost Plus”, “Cost Plus World Market” and “World Market” marks. In the European Union, the Company has registered its “World Market” and logo mark. In Mexico, the Company has registered its “Mercado Del Mundo” and “World Market” marks. The Company’s policy is to pursue prompt and broad registration of its marks and to vigorously oppose infringement of its marks.
Risk Factors
Seasonality and Quarterly Fluctuations. The Company’s 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 the Company expects it will continue to contribute, a disproportionate percentage of the Company’s net sales and much of its net income for the entire fiscal year. Any factors negatively affecting the Company during the Holiday selling season in any year, including unfavorable economic conditions, could have a material adverse effect on the Company’s financial condition and results of operations. 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 number and timing of new 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, labor market fluctuations, changes in accounting rules and regulations and unseasonable weather conditions.
Effect of Economic Conditions and Geographic Concentration. The success of the Company’s business depends to a significant extent upon the level of consumer spending. Among the factors that affect consumer spending are the general state of the economy, the level of consumer debt, prevailing interest rates and consumer confidence in future economic conditions. A substantial number of the Company’s stores are located in the western United States, principally in California. Lower levels of consumer spending in this region could have a material adverse effect on the Company’s financial condition and results of operations. Reduced consumer confidence and spending may result in reduced demand for the Company’s products, limitations on the Company’s ability to increase prices and may require increased levels of selling and promotional expenses, thereby adversely affecting the Company’s financial condition and results of operations.
Threat or Occurrence of International Conflicts or Terrorist Activities. The occurrence or threat of international conflicts or terrorist activities, the responses thereto, and the results of such activities could materially impact the Company, its personnel and facilities, its customers and suppliers, retail and financial markets and general economic conditions.
Changes in Energy and Transportation Costs. The Company incurs significant costs for the purchase of fuel in transporting goods to its distribution centers and stores and for the purchase of utility service for its store, distribution center and corporate office locations. The Company is in the process of negotiating pricing for certain transportation contracts and expects rate increases due to new federal regulations and vendor proposed rate increases. Given the uncertain outcome of these negotiations, it is too early to determine the extent of any rate increase on the Company’s financial condition and results of operations. Significant increases in the cost of fuel and utility services could have a material adverse effect on the Company’s financial condition and results of operations.
Risks Associated with Expansion. The Company’s ability to continue to increase its net sales and earnings will depend in part on its ability to open new stores and to operate such stores on a profitable basis. The Company’s continued growth will also depend on its ability to increase sales in its existing stores. The Company opened a net of 29 stores in fiscal 2003 and presently anticipates opening a net of 33 stores in fiscal 2004.* The Company intends to open stores in both existing and new geographic markets. The opening of additional stores in an existing market could result in lower net sales from existing Company stores in that market. The success of the Company’s planned expansion will be dependent upon many factors, including the identification of suitable markets, the availability and leasing of suitable sites on acceptable terms, the hiring, training and retention of qualified management and other store personnel and general economic conditions. To manage its planned expansion, the Company must ensure the continuing adequacy of its existing systems, controls and procedures, including product distribution facilities, store management, financial controls and information systems. There can be no assurance that the Company will be able to achieve its planned expansion, that new stores will be effectively integrated into the Company’s existing operations or that such stores will be profitable.
The Company’s expansion strategy includes opening stores in new geographic markets. These new markets may present competitive and merchandising challenges that are different from those currently faced by the Company in its existing geographic markets. The Company may incur higher costs related to advertising and distribution in connection with entering new markets. If the Company opens stores in new markets that do not perform to the Company’s expectations or if store openings are delayed, the Company’s financial condition and results of operations could be materially adversely affected.
Risks Associated with Comparable Store Sales. The Company experiences fluctuations in its comparable store sales, which are defined as stores which have completed fourteen full fiscal months of sales. To ensure a meaningful comparison, comparable store sales are always measured on a 52-week basis. The Company’s success depends, in part, upon its ability to improve sales at its stores. Various factors affect comparable store sales, including the general retail sales environment, the Company’s ability to efficiently source and distribute products, changes in the Company’s 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 may cause the Company’s comparable store sales results to differ materially from prior periods and from expectations. Past comparable store sales are no indication of future results, and there can be no assurance that the Company’s comparable store sales will not decrease in the future. Any failure to meet the comparable store sales expectations of investors and security analysts in one or more future periods could reduce the market price of the Company’s common stock.
Risks Associated with Importing. The Company imports a significant portion of its merchandise from approximately 70 countries. The Company relies on its long-term relationships with its suppliers but has no long-term contracts with such suppliers. The Company’s future success will depend in large measure upon its ability to maintain its existing supplier relationships or to develop new ones.
As an importer, the Company’s business is subject to the risks generally associated with doing business abroad, such as foreign governmental regulations, economic disruptions, delays in shipments, freight cost increases and changes in political or economic conditions in countries in which the Company purchases products. The Company’s business is also subject to the risks associated with any new or revised United States legislation and regulations related to imported products, including quotas, duties, taxes and other charges or restrictions on imported merchandise. If any such factors were to render the conduct of business in particular countries undesirable or impractical or if additional United States quotas, duties, taxes or other charges or restrictions were imposed upon the importation of the Company’s products in the future, the Company’s financial condition and results of operations could be materially adversely affected.
Dependence on Two Distribution Facilities. The Company’s distribution functions for all of its stores are currently handled from facilities in Stockton, California and Windsor, Virginia. Any significant interruption in the operation of these facilities, including any interruption as a result of the planned expansion of the Virginia facility, would have a material adverse effect on the Company’s financial condition and results of operations. Operational inefficiencies or failure to coordinate the operations of these facilities successfully could have a material adverse effect on the Company’s financial condition and results of operations.
Risks Associated with Merchandising. The Company’s success depends in part upon the ability of its merchandising staff to anticipate the tastes of its customers and to provide merchandise that appeals to their preferences. The Company’s strategy requires it to introduce in a timely manner products from around the world that are affordable, distinctive in quality and design and that are not widely available from other retailers. Many of the Company’s products require long lead times. In addition, a large percentage of the Company’s merchandise changes regularly. The Company’s failure to anticipate, identify or react appropriately to changes in consumer trends could lead to, among other things, either excess inventories and higher markdowns or a shortage of products and could have a material adverse effect on the Company’s financial condition and results of operations.
Competition. The markets served by the Company 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 specialty retailers as Bed, Bath & Beyond, Linens n’ Things, Crate & Barrel, Pottery Barn, Michaels Stores, Pier 1 Imports, Trader Joe’s and Williams-Sonoma. The Company competes with these and other retailers for customers, suitable retail locations and qualified management personnel. Many of the Company’s competitors have significantly greater financial, marketing and other resources than the Company and there can be no assurance that the Company will be able to compete successfully in the future.
Dependence on Key Personnel. The success of the Company’s business will continue to depend upon its key personnel. The Company does not maintain any key man life insurance policies. The loss of the services of one or more of its key personnel could have a material adverse effect on the Company’s financial condition and results of operations.
Possible Volatility of Stock Price. The stock market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. In the past, these broad market fluctuations have adversely affected the market price of the Company’s common stock. Factors such as fluctuations in the Company’s operating results, a downturn in the retail industry, changes in stock market analysts’ recommendations regarding the Company, other retail companies or the retail industry in general and general market and economic conditions may also have a significant effect on the market price of the Company’s common stock.
Risks Associated with Foreign Currency. The Company enters into a significant amount of purchase obligations outside of the United States of America. During fiscal 2003, approximately 6% of these purchases were settled in currencies other than the U.S. Dollar. Fluctuations in the rates of exchange between the U.S. Dollar and other currencies may have an adverse effect on the Company’s financial condition and results of operations. Historically, the Company has not hedged its currency risk and does not currently anticipate doing so in the future.
ITEM 2.
ITEM 2. PROPERTIES
As of March 31, 2004, the Company operated 212 stores in 26 states. The average selling space of a Cost Plus World Market store is approximately 16,000 square feet. The total average square footage of a Cost Plus World Market store is approximately 18,300 square feet since most stores contain a stock room and modest office space. The table below summarizes the distribution of stores by state:
Alabama
Georgia
Minnesota
Ohio
Arizona
Idaho
Missouri
Oregon
California
Illinois
Montana
South Carolina
(Northern California
28)
Indiana
Nebraska
Texas
(Southern California
32)
Iowa
Nevada
Virginia
Colorado
Louisiana
New Mexico
Washington
Florida
Michigan
North Carolina
Wisconsin
The Company leases land and buildings for 206 stores (of which 16 are capital leases) and leases land and owns the buildings for six stores. The Company currently leases its executive headquarters in Oakland, California pursuant to a lease that expires in October 2008. The Company currently leases its distribution facility of approximately 520,000 square feet in Stockton, California pursuant to a lease that expires in September 2006 and has two renewal options for five years each. In July 2001, the Company leased a furniture warehouse of approximately 260,000 square feet in Stockton, California pursuant to a lease that expires in September 2006 and has one renewal option for three years.
The Company leases a distribution facility (capital lease) of approximately 500,000 square feet in Windsor, Virginia pursuant to a lease that expires in January 2022. In fiscal 2004, the Company plans to begin construction on the expansion of its 500,000 square foot Virginia distribution center to 1,000,000 square feet, with the added capacity scheduled to come online in the first half of fiscal 2005.* In connection with the expansion, the Company also reached an agreement to purchase the existing 500,000 square foot facility currently under lease for $26.5 million, which is expected to close in May 2004.* The completion of both transactions is subject to obtaining necessary approvals and permits and negotiation of a definitive financing agreement.
The Company believes its current distribution facilities are adequate to meet immediate needs but continues to evaluate distribution facility requirements to accommodate future store growth.* The Company uses additional warehouse facilities to handle seasonal requirements and expects these facilities will be available in the future as needed.*
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding other than ordinary routine litigation incidental to the business.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
Name
Age
Position
Murray H. Dashe
Chairman of the Board, Chief Executive Officer and President
Gary D. Weatherford
Executive Vice President, Operations
Michael J. Allen
Senior Vice President, Store Operations
Joan S. Fujii
Senior Vice President, Human Resources
Stephen L. Higgins
Senior Vice President, Merchandising
Patricia A. Juckett
Senior Vice President, Advertising & Marketing
John J. Luttrell
Senior Vice President and Chief Financial Officer (Principal Accounting Officer)
Judith A. Soares
Senior Vice President, Cost Plus Management Services, Inc.
Mr. Dashe joined the Company in June 1997 and has served as Chairman of the Board and Chief Executive Officer since February 1998 with continued responsibilities as President. In September 1997, Mr. Dashe was appointed President with continued responsibilities as Vice Chairman of the Board. From June 1997 to September 1997, Mr. Dashe served as the Company’s Vice Chairman of the Board. Mr. Dashe is responsible for overseeing all day-to-day operations and long-term strategies of the Company. From August 1992 to June 1997, he was Chief Operating Officer of Leslie’s Poolmart, Inc., a swimming pool supply retail chain and was a director of that company from August 1989 to November 1996. From April 1990 through June 1992, he was President and Chief Executive Officer of RogerSound Labs, a Southern California retailer of audio/video consumer electronics. From September 1985 through April 1990, Mr. Dashe held several positions with SILO, a consumer electronics and appliance retailer, including Regional President, Regional Vice President and Director of Stores. Previously, he was employed in an executive capacity by other retailers, including Allied Stores Corp., now Federated Department Stores, where he served in a variety of positions, including Vice President/Director of Stores. Mr. Dashe is a member of the Board of Trustees for Albright College in Reading, PA and a member of the Board of Directors of Long’s Drug Store Corporation in Walnut Creek, CA.
Mr. Weatherford joined the Company in January 1988, and was named Executive Vice President, Operations in March 2002 with responsibility for Information Services, Distribution, Store Operations and Visual Merchandising. Previously, Mr. Weatherford served as Vice President, Store Operations from June 1995 until February 1998 when he was promoted to Senior Vice President, Store Operations. From April 1991 to June 1995, Mr. Weatherford served as a Regional Manager for the Company and from January 1990 to April 1991 he was a Senior Store Manager for the Company. From January 1988 to January 1990, Mr. Weatherford served as a Buyer and Store Design Director for the Company.
Mr. Allen joined the Company in December 1988 as a Regional Manager, was later promoted to Director of Store Operations and in 1998 became Vice President, Real Estate and Store Development. In March 2002, Mr. Allen was promoted to Senior Vice President, Store Operations with responsibility for Store Operations, Development and Real Estate. Prior to coming to Cost Plus, he was a District Manager for Liquor Barn, a discount beverage retailer, from 1986 to 1988. From 1981 to 1985, he was a store manager for Safeway Corporation, a food grocery chain.
Ms. Fujii was named the Company’s Senior Vice President, Human Resources in February 1998. Ms. Fujii joined the Company in May 1991 and served as Vice President, Human Resources from October 1994 until February 1998. From May 1991 to October 1994, Ms. Fujii served as the Company’s Director of Human Resources. From September 1975 to May 1991, she was employed by Macy’s California in various operations and human resources management positions, ultimately serving as Vice President, Human Resources at Macy’s Union Square store in San Francisco.
Mr. Higgins joined the Company in December 1999 as Vice President, Merchandising and was promoted to Senior Vice President in September 2000. Prior to joining the Company and from November 1996 to November 1999, Mr. Higgins served as President, Chief Operating Officer of Centex Life Solutions, a health and wellness products retailer. From September 1994 to October 1996, Mr. Higgins was President, Chief Executive Officer of Everything Organized, a storage and organization retailer. From January 1992 to August 1994, Mr. Higgins was President, Chief Operating Officer of Tuesday Morning the nation’s largest off-price Home/Gift retailer and from October 1988 to December 1992, he was its Senior Vice President of Merchandising.
Ms. Juckett joined Cost Plus, Inc in August 1997 as Vice President, Marketing and Advertising following an extensive career in the advertising industry on the agency side of the business. In March 2004, Ms. Juckett was promoted to Senior Vice President, Advertising and Marketing having responsibility for the complete multi-media multi-market advertising programs for the Company and special market research projects. Ms. Juckett’s accomplishments prior to joining Cost Plus Inc. included the development and successful management of advertising programs for a wide range of retail, packaged goods and service oriented clients.
Mr. Luttrell joined Cost Plus, Inc. in May 2000 as Vice President, Controller and was promoted to his current position in August 2001 as Senior Vice President and Chief Financial Officer. From October 1998 to May 2000, Mr. Luttrell served as Vice President and Controller of Bugle Boy Industries, a manufacturer of clothing (“Bugle Boy”). In February 2001, Bugle Boy filed for protection under Chapter 11 of the Federal Bankruptcy Act.
Ms. Soares joined Cost Plus, Inc. in May 1998 as Vice President, Information Services. In March 2002, Ms. Soares was promoted to Senior Vice President, Cost Plus Management Services, Inc. having responsibility for Information Services, Distribution and Logistics. Prior to joining Cost Plus, Inc., Ms. Soares served as Vice President of Information Services for Natural Wonders, a specialty gift retailer, from June 1996 to May 1998. From April 1993 to March 1996, Ms. Soares served as Vice President of Information Services for Home Express, a specialty home products retailer. From March 1990 to March 1993, Ms. Soares served as Vice President of Development for The Gap, a specialty apparel retailer. Ms. Soares has served in various positions within information systems for Mervyn’s and Lucky stores from 1980 to 1990.
PART II
Information called for by Part II (Items 5, 6, 7, 7A and 8) has been filed as Exhibit 13 to this report on Form 10-K. Such information is incorporated herein by reference.
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information required by this item is incorporated herein by reference to the Company’s fiscal 2003 Annual Report to Shareholders (on page 32), filed as Exhibit 13 to this report on Form 10-K.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated herein by reference to the Company’s fiscal 2003 Annual Report to Shareholders (on page 21), filed as Exhibit 13 to this report on Form 10-K.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this item is incorporated herein by reference to the Company’s fiscal 2003 Annual Report to Shareholders (on pages 22-31), filed as Exhibit 13 to this report on Form 10-K.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated herein by reference to the Company’s 2003 fiscal Annual Report to Shareholders (on page 32), filed as Exhibit 13 to this report on Form 10-K.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS
The information required by this item is incorporated herein by reference to the Company’s fiscal 2003 Annual Report to Shareholders (on pages 21 and 33-48), filed as Exhibit 13 to this report on Form 10-K.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. (a) Within the 90-day period prior to the date of this report, the Company, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (the “Evaluation”). Based upon the Evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that material information relating to the Company, including consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which this annual report was being prepared. It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
Changes in Internal Controls. (b) There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the Evaluation.
PART III
Information called for by Part III (Items 10, 11, 12 and 13) of this report on Form 10-K has been omitted as the Company intends to file with Securities and Exchange Commission not later than May 30, 2004 a definitive Proxy Statement pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934. Such information will be set forth in such Proxy Statement and is incorporated herein by reference.
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company has adopted a Code of Business Conduct and Ethics applicable to the Company’s Chief Executive Officer, Chief Financial Officer and Controller. A copy of this Code of Business Conduct and Ethics is filed as an exhibit to this report on Form 10-K.
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) 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 “Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” and “Corporate Governance Principles and Practices,” respectively, in our Proxy Statement for the Company’s 2004 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 report.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to the section entitled “Executive Compensation and Other Matters” in the Proxy Statement for the Company’s 2004 Annual Meeting of Shareholders.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to the section entitled “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement for the Company’s 2004 Annual Meeting of Shareholders.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information with respect to the Company’s equity compensation plans as at the end of the most recently competed fiscal year.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain information required by this item is incorporated herein by reference to the section entitled “Certain Relationships and Related Transactions” in the Proxy Statement for the Company’s 2004 Annual Meeting of Shareholders.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated herein by reference to the section entitled “Independent Accountant Fees” in the Proxy Statement for the Company’s 2004 Annual Meeting of Shareholders.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. Financial Statements:
The following financial statements of Cost Plus, Inc. are incorporated herein by reference to the Company’s fiscal 2003 Annual Report to Shareholders for the year ended January 31, 2004, filed as Exhibit 13 to this report on Form 10-K:
Consolidated Balance Sheets as of January 31, 2004 and February 1, 2003
Consolidated Statements of Operations for the fiscal years ended January 31, 2004, February 1, 2003 and February 2, 2002
Consolidated Statements of Shareholders’ Equity for the fiscal years ended January 31, 2004, February 1, 2003 and February 2,
Consolidated Statements of Cash Flows for the fiscal years ended January 31, 2004, February 1, 2003 and February 2, 2002
Notes to Consolidated Financial Statements
Independent Auditors’ Report
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.
3. List of Exhibits:
See Exhibit Index beginning on page 15.
(b) Reports on Form 8-K:
The following reports were filed for the last quarter of the fiscal year:
On November 6, 2003, the Company filed a current report on Form 8-K dated November 6, 2003, reporting a press release regarding the Company’s fiscal 2003 third quarter sales and same store sales data and endorsed its third quarter earnings guidance.
On November 19, 2003, the Company filed a current report on Form 8-K dated November 19, 2003, reporting a press release regarding the Company’s fiscal 2003 third quarter sales and earnings data and provided fourth quarter earnings guidance and updated full year earnings guidance.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
INDEX TO EXHIBITS
¨ Management compensation plan or arrangement.