Cost Plus Inc. (NASDAQ: CPWM) is one company which we might generally skip due to its size and volume.  The insider buying of late has been too large to ignore.  This is one of the retailers that became very much “at risk” during the recession and even before.  Many still consider it less healthy in liquidity as others despite the company’s consistent home product offerings and its nice store format that ranges from furniture to accessories to food and more.  Now we have recent insider buying and we wanted to see if management and insiders know something that the rest of us do not.

Willem Mesdag, a director, recently purchased more than just a few shares.  On May 24, 2011, Mesdag bought 100,000 shares at $8.84 per share for a total of $884,000.00 and he bought another 29,700 shares the following day at $9.00 for a total of more than $267,000.00. Form 4 filings show that more shares were also acquired:

• June 2: Buy 89,300 shares at $8.94 for $798,601
• June 3:    Buy 36,250 shares at $8.92 for $323,259
• June 6: Buy 184,400 shares at $8.88 for $1,638,265

Mesdag is now shown to own a total of 1,542,150 shares, although the SEC footnotes show that these are held by Red Mountain Capital Partners II, L.P.

In mid-May came news that the company’s loss narrowed to $3.4 million as revenue rose about 6% to $199.7 million for the most recent quarter.  The company also raised guidance with its last earnings report.  Next quarter it sees a net quarter loss of $8 to $10 million, or -$0.37 to -$0.44 EPS with sales of $195 to $199 million.  Net income from continuing operations for its fiscal year of $13 to $15 million, or $0.54 to $0.63 EPS (was $4.7 million for fiscal 2010).

The company also ended the latest quarter with $41 million in borrowings and $7.8 million in letters of credit under its credit facility, down from $61.7 million in borrowings and $10.0 million in letters of credit a year earlier.  More importantly, it claims that the liquidity position is sufficient to meet expenses over the next year and for the foreseeable future.

Cost Plus is one of the retailers which has not ever paid a dividend to its shareholders.  Until the company is consistently earning money every quarter we do not expect that to change.  The company had long ago been a target of Pier 1 Imports, Inc. (NYSE: PIR) but the company fought that off and shares have rallied handily since then.

At the end of May came new coverage on Cost Plus from BB&T, but shares were only started with a HOLD rating.  This is not exactly the most deeply research-infested retailer as its market cap is only about $200 million.  At $9.00, the 52-week trading range is $2.63 to $12.88.

It s hard to know what insider buying means, but insider buying is almost always viewed better than insider selling.  This stake is now worth nearly $14 million and that has been increased substantially in just the last two weeks.

JON C. OGG

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