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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended May 2, 2009

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT OF 1934
|- | -----------------------------------------------------------------------------

For the transition period from  to

Commission file number 0-14970

COST PLUS,
INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|California                                                     |  | 94-1067973                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|200 4th Street, Oakland, California                            |  | 94607                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

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





(Former name, former address and former fiscal year, if changed since last report)

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   ̈    No   ̈

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



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

As of June 4, 2009, the number of shares of the registrants Common Stock, $0.01 par value, outstanding was 22,087,113.









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##### Table of Contents

COST PLUS, INC.

FORM 10-Q

For the Quarter Ended May 2, 2009

TABLE OF CONTENTS



|               |  |                                                                                       |  |     
|-------------- |  | ------------------------------------------------------------------------------------- |  | ----
|               |  |                                                                                       |  | Page
|PART I.        |  | FINANCIAL INFORMATION                                                                 |  |     
|               |  |                                                                                      
|ITEM 1.        |  | Condensed Consolidated Financial Statements (unaudited)                               |  |     
|               |  |                                                                                      
|               |  | Balance Sheets as of May 2, 2009, January 31, 2009 and May 3, 2008                    |  | 2   
|               |  |                                                                                      
|               |  | Statements of Operations for the three months ended May 2, 2009 and May 3, 2008       |  | 3   
|               |  |                                                                                      
|               |  | Statements of Cash Flows for the three months ended May 2, 2009 and May 3, 2008       |  | 4   
|               |  |                                                                                      
|               |  | Notes to Condensed Consolidated Financial Statements                                  |  | 5   
|               |  |                                                                                      
|ITEM 2.        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 11  
|               |  |                                                                                      
|ITEM 3.        |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 15  
|               |  |                                                                                      
|ITEM 4.        |  | Controls and Procedures                                                               |  | 15  
|               |  |                                                                                      
|PART II.       |  | OTHER INFORMATION                                                                     |  |     
|               |  |                                                                                      
|ITEM 6.        |  | Exhibits                                                                              |  | 16  
|               | 
|SIGNATURE PAGE |  | 17                                                                                   



1



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##### Table of Contents

PART I. FINANCIAL INFORMATION



|ITEM 1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|------- | -------------------------------------------

COST PLUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts, unaudited)



|                                                                                                                                |  |             |         |   |                  |   |         |             |  |   |        
|------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------- | - | ---------------- | - | ------- | ----------- |  | - | -------
|                                                                                                                                |  | May 2, 2009 |         |   | January 31, 2009 |   |         | May 3, 2008
|ASSETS                                                                                                                          |  |             |         |   |                  |   |         |             |  |   |        
|Current assets:                                                                                                                 |  |             |         |   |                  |   |         |             |  |   |        
|Cash and cash equivalents                                                                                                       |  | $           | 2,468   |   |                  | $ | 3,707   |             |  | $ | 2,953  
|Merchandise inventories, net                                                                                                    |  |             | 191,946 |   |                  |   | 218,105 |             |  |   | 266,067
|Other current assets                                                                                                            |  |             | 18,891  |   |                  |   | 23,446  |             |  |   | 37,218 
|                                                                                                                                |  |             |         |   |                  |   |         |             |  |   |        
|Total current assets                                                                                                            |  |             | 213,305 |   |                  |   | 245,258 |             |  |   | 306,238
|Property and equipment, net                                                                                                     |  |             | 182,879 |   |                  |   | 195,018 |             |  |   | 215,785
|Other assets, net                                                                                                               |  |             | 4,524   |   |                  |   | 4,716   |             |  |   | 14,186 
|                                                                                                                                |  |             |         |   |                  |   |         |             |  |   |        
|Total assets                                                                                                                    |  | $           | 400,708 |   |                  | $ | 444,992 |             |  | $ | 536,209
|                                                                                                                                |  |             |         |   |                  |   |         |             |  |   |        
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                            |  |             |         |   |                  |   |         |             |  |   |        
|Current liabilities:                                                                                                            |  |             |         |   |                  |   |         |             |  |   |        
|Accounts payable                                                                                                                |  | $           | 48,317  |   |                  | $ | 75,163  |             |  | $ | 57,801 
|Accrued compensation                                                                                                            |  |             | 13,587  |   |                  |   | 12,819  |             |  |   | 12,849 
|Current portion of revolving line of credit                                                                                     |  |             |        |   |                  |   |        |             |  |   | 58,523 
|Current portion of long-term debt                                                                                               |  |             | 836     |   |                  |   | 823     |             |  |   | 787    
|Other current liabilities                                                                                                       |  |             | 35,864  |   |                  |   | 27,680  |             |  |   | 41,614 
|                                                                                                                                |  |             |         |   |                  |   |         |             |  |   |        
|Total current liabilities                                                                                                       |  |             | 98,604  |   |                  |   | 116,485 |             |  |   | 171,574
|Long-term portion of revolving line of credit                                                                                   |  |             | 58,924  |   |                  |   | 38,500  |             |  |   |       
|Capital lease obligations                                                                                                       |  |             | 7,000   |   |                  |   | 7,133   |             |  |   | 8,000  
|Long-term debt  distribution center obligations                                                                                |  |             | 113,375 |   |                  |   | 113,588 |             |  |   | 114,211
|Other long-term obligations                                                                                                     |  |             | 27,714  |   |                  |   | 33,077  |             |  |   | 36,416 
|Commitments and contingencies                                                                                                   |  |             |         |   |                  |   |         |             |  |   |        
|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 22,087,113; 22,087,113 and 22,087,113
shares |  |             | 221     |   |                  |   | 221     |             |  |   | 221    
|Additional paid-in capital                                                                                                      |  |             | 170,615 |   |                  |   | 170,151 |             |  |   | 169,274
|Retained earnings/(Accumulated deficit)                                                                                         |  |             | (75,745 | ) |                  |   | (34,163 | )           |  |   | 36,513 
|                                                                                                                                |  |             |         |   |                  |   |         |             |  |   |        
|Total shareholders equity                                                                                                      |  |             | 95,091  |   |                  |   | 136,209 |             |  |   | 206,008
|                                                                                                                                |  |             |         |   |                  |   |         |             |  |   |        
|Total liabilities and shareholders equity                                                                                      |  | $           | 400,708 |   |                  | $ | 444,992 |             |  | $ | 536,209
|                                                                                                                                |  |             |         |   |                  |   |         |             |  |   |        

See notes to condensed consolidated financial statements.



2



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COST PLUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per
share amounts, unaudited)



|                                                                 |  |                    |         |   |             |   |         |  
|---------------------------------------------------------------- |  | ------------------ | ------- | - | ----------- | - | ------- | -
|                                                                 |  | Three Months Ended |        
|                                                                 |  | May 2, 2009        |         |   | May 3, 2008 |  
|Net sales                                                        |  | $                  | 184,260 |   |             | $ | 201,880 |  
|Cost of sales and occupancy                                      |  |                    | 136,342 |   |             |   | 145,958 |  
|                                                                 |  |                    |         |   |             |   |         |  
|Gross profit                                                     |  |                    | 47,918  |   |             |   | 55,922  |  
|Selling, general and administrative expenses                     |  |                    | 64,513  |   |             |   | 72,222  |  
|Store closure costs                                              |  |                    | 5,747   |   |             |   |        |  
|Store preopening expenses                                        |  |                    |        |   |             |   | 1,894   |  
|                                                                 |  |                    |         |   |             |   |         |  
|Loss from continuing operations, before interest and taxes       |  |                    | (22,342 | ) |             |   | (18,194 | )
|Net interest expense                                             |  |                    | 2,836   |   |             |   | 3,015   |  
|                                                                 |  |                    |         |   |             |   |         |  
|Loss from continuing operations before income taxes              |  |                    | (25,178 | ) |             |   | (21,209 | )
|Income tax expense/(benefit)                                     |  |                    | 212     |   |             |   | (591    | )
|                                                                 |  |                    |         |   |             |   |         |  
|Net loss from continuing operations                              |  |                    | (25,390 | ) |             |   | (20,618 | )
|Loss from discontinued operations, net of tax                    |  |                    | (16,189 | ) |             |   | (11,374 | )
|                                                                 |  |                    |         |   |             |   |         |  
|Net loss                                                         |  | $                  | (41,579 | ) |             | $ | (31,992 | )
|                                                                 |  |                    |         |   |             |   |         |  
|Net loss per weighted average share from continuing operations   |  |                    |         |   |             |   |         |  
|Basic                                                            |  | $                  | (1.15   | ) |             | $ | (0.93   | )
|Diluted                                                          |  | $                  | (1.15   | ) |             | $ | (0.93   | )
|                                                                 |  |                    |         |   |             |   |         |  
|Net loss per weighted average share from discontinued operations |  |                    |         |   |             |   |         |  
|Basic                                                            |  | $                  | (0.73   | ) |             | $ | (0.52   | )
|Diluted                                                          |  | $                  | (0.73   | ) |             | $ | (0.52   | )
|                                                                 |  |                    |         |   |             |   |         |  
|Net loss per weighted average share                              |  |                    |         |   |             |   |         |  
|Basic                                                            |  | $                  | (1.88   | ) |             | $ | (1.45   | )
|Diluted                                                          |  | $                  | (1.88   | ) |             | $ | (1.45   | )
|                                                                 |  |                    |         |   |             |   |         |  
|Weighted average shares outstanding                              |  |                    |         |   |             |   |         |  
|Basic                                                            |  |                    | 22,087  |   |             |   | 22,087  |  
|Diluted                                                          |  |                    | 22,087  |   |             |   | 22,087  |  
|                                                                 |  |                    |         |   |             |   |         |  

See notes to condensed consolidated financial statements.



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COST PLUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)



|                                                                            |  |                    |         |   |             |   |         |  
|--------------------------------------------------------------------------- |  | ------------------ | ------- | - | ----------- | - | ------- | -
|                                                                            |  | Three Months Ended |        
|                                                                            |  | May 2, 2009        |         |   | May 3, 2008 |  
|Cash Flows From Operating Activities:                                       |  |                    |         |   |             |   |         |  
|Net loss                                                                    |  | $                  | (41,579 | ) |             | $ | (31,992 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                    |         |   |             |   |         |  
|Depreciation and amortization                                               |  |                    | 7,839   |   |             |   | 8,968   |  
|Deferred income taxes                                                       |  |                    |        |   |             |   | (102    | )
|Share-based compensation expense                                            |  |                    | 463     |   |             |   | 481     |  
|Loss on asset disposal                                                      |  |                    | 86      |   |             |   | 1,328   |  
|Changes in assets and liabilities:                                          |  |                    |         |   |             |   |         |  
|Merchandise inventories                                                     |  |                    | 26,159  |   |             |   | 6,788   |  
|Income taxes receivable                                                     |  |                    | (48     | ) |             |   | 990     |  
|Other assets                                                                |  |                    | 4,786   |   |             |   | 3,618   |  
|Accounts payable                                                            |  |                    | (26,277 | ) |             |   | (34,809 | )
|Other liabilities                                                           |  |                    | 8,296   |   |             |   | 10,069  |  
|                                                                            |  |                    |         |   |             |   |         |  
|Net cash used in operating activities                                       |  |                    | (20,275 | ) |             |   | (34,661 | )
|                                                                            |  |                    |         |   |             |   |         |  
|Cash Flows From Investing Activities:                                       |  |                    |         |   |             |   |         |  
|Purchases of property and equipment                                         |  |                    | (801    | ) |             |   | (5,636  | )
|Proceeds from sale of property and equipment                                |  |                    | 4       |   |             |   | 33      |  
|                                                                            |  |                    |         |   |             |   |         |  
|Net cash used in investing activities                                       |  |                    | (797    | ) |             |   | (5,603  | )
|                                                                            |  |                    |         |   |             |   |         |  
|Cash Flows From Financing Activities:                                       |  |                    |         |   |             |   |         |  
|Net borrowings under revolving line of credit                               |  |                    | 20,424  |   |             |   | 40,463  |  
|Principal payments on long-term debt                                        |  |                    | (200    | ) |             |   | (189    | )
|Principal payments on capital lease obligations                             |  |                    | (391    | ) |             |   | (340    | )
|                                                                            |  |                    |         |   |             |   |         |  
|Net cash provided by financing activities                                   |  |                    | 19,833  |   |             |   | 39,934  |  
|                                                                            |  |                    |         |   |             |   |         |  
|Net decrease in cash and cash equivalents                                   |  |                    | (1,239  | ) |             |   | (330    | )
|                                                                            |  |                    |         |   |             |   |         |  
|Cash and Cash Equivalents:                                                  |  |                    |         |   |             |   |         |  
|Beginning of period                                                         |  |                    | 3,707   |   |             |   | 3,283   |  
|                                                                            |  |                    |         |   |             |   |         |  
|End of period                                                               |  | $                  | 2,468   |   |             | $ | 2,953   |  
|                                                                            |  |                    |         |   |             |   |         |  
|Supplemental Disclosures of Cash Flow Information:                          |  |                    |         |   |             |   |         |  
|Cash paid for interest                                                      |  | $                  | 2,801   |   |             | $ | 2,049   |  
|                                                                            |  |                    |         |   |             |   |         |  
|Cash paid for income taxes                                                  |  | $                  | 259     |   |             | $ | 1,403   |  
|                                                                            |  |                    |         |   |             |   |         |  

See notes to condensed consolidated financial statements.



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COST PLUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended
May 2, 2009 and May 3, 2008

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared
from the records of Cost Plus, Inc. (the Company) and, in the opinion of management, include all adjustments that are normal and recurring in nature necessary to present fairly the Companys financial position at May 2, 2009
and May 3, 2008, and the interim results of operations for the three months ended May 2, 2009 and May 3, 2008, and cash flows for the three months ended May 2, 2009 and May 3, 2008. The balance sheet at January 31,
2009, presented herein, has been derived from the audited financial statements of the Company for the fiscal year then ended. The condensed consolidated statement of operations for the three-month period ended May 3, 2008 has been revised to
present certain components as discontinued operations (see Note 3). Unless otherwise indicated, information presented in the notes to the financial statements relates only to the Companys continuing operations.

Accounting policies followed by the Company are described in Note 1 to the audited consolidated financial statements for the fiscal year ended January 31, 2009 in
the Companys Annual Report on Form 10-K. Certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America
have been condensed or omitted for purposes of presenting the interim condensed consolidated financial statements. Such statements should be read in conjunction with the audited consolidated financial statements, including notes thereto, for the
fiscal year ended January 31, 2009.

Including fiscal 2008, the Company has experienced net losses each annual period since fiscal 2006. As of
May 2, 2009, the Company had an accumulated deficit of $75.7 million. For fiscal 2007 and for each annual period since fiscal 2004, the Company had decreases in cash and cash equivalents. There can be no assurance that the business will be
profitable in the future or that additional losses and negative cash flows from operations will not be incurred, which could have a material adverse affect on the Companys financial condition. The Company believes that its existing cash
balance, combined with cash flows from operations and borrowings under its revolving credit facility, will be sufficient to enable it to meet planned expenditures under the turnaround plan through the next 12 months. The turnaround plan includes,
among other things, the closure of 26 underperforming stores in the first quarter of fiscal 2009, corporate and distribution center work force reductions that occurred in the fourth quarter of fiscal 2008, delaying new store expansion, reductions in
marketing and capital expenditures, and delaying new hires. The Company is dependent upon its revolving credit facility to fund operating losses and seasonal inventory purchases. The Company does not plan on fully paying off its revolving credit
facility during fiscal 2009. Access to the Companys revolving credit facility is dependent upon meeting its debt covenant and not exceeding the borrowing limit of the revolving credit facility. There can be no assurance that the Company will
achieve or sustain positive cash flows from operations or profitability. If the Company is unable to maintain adequate liquidity, future operations will need to be scaled back or discontinued.

The results of operations for the three-month period ended May 2, 2009, presented herein, are not indicative of the results to be expected for the full year because
of, among other things, seasonal factors in the retail business.

2. CONTINUING OPERATIONS STORE CLOSURE ACTIVITIES

In January 2009, the Board of Directors of the Company approved a plan for the Company to close 26 of its existing stores; eight of these stores are classified within
continuing operations. All eight stores classified within continuing operations were closed during the first quarter of fiscal 2009 and, with the exception of finalizing any lease settlement activities, all store closure activities were completed
during the first quarter of fiscal 2009.

The costs associated with closing the stores were accounted for in accordance with SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities. During the first quarter of fiscal 2009, the costs related to closing the eight stores during the quarter totaled $5.7 million, consisting primarily of estimated lease
exit costs net of estimated sublease income, employee severance and various other costs related to the closure of stores. There were no store closure costs in the first quarter of fiscal 2008 relating to closed stores that were classified within
continuing operations.



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Additional charges or gains 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 this disposition 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 reserve for continuing operations store closures, which is
included in total current liabilities as of May 2, 2009 (in thousands):



|                                                   |  |   |       |  
|-------------------------------------------------- |  | - | ----- | -
|Balance at January 31, 2009                        |  | $ |      |  
|Lease exit costs, net of estimated sublease income |  |   | 4,912 |  
|Severance and closure costs                        |  |   | 835   |  
|                                                   |  |   |       |  
|Total provision for store closures                 |  |   | 5,747 |  
|                                                   |  |   |       |  
|Payments for leases and settlements                |  |   | (704  | )
|Payments for severance and closure costs           |  |   | (835  | )
|                                                   |  |   |       |  
|Balance at May 2, 2009                             |  | $ | 4,208 |  
|                                                   |  |   |       |  

3. DISCONTINUED OPERATIONS

As previously mentioned, the Board of Directors of the Company approved a plan for the Company to close 26 of its existing stores; 18 of these stores are classified within discontinued operations as they were in eight
underperforming media markets that the Company exited. All 18 stores classified within discontinued operations were closed during the first quarter of fiscal 2009 and, with the exception of finalizing any lease settlement activities, all store
closure activities were completed during the first quarter of fiscal 2009. The loss from discontinued operations of $16.2 million for the first quarter of fiscal 2009 also includes remaining lease liability costs related to 13 stores that were
closed in the first quarter of fiscal 2008, which are also reported as discontinued operations.

The 18 stores closed in the first quarter of fiscal 2009
and the 13 stores closed in the first quarter of fiscal 2008 are reported as discontinued operations in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of
Long-Lived Asset, and as such both current and prior year results for these stores are classified as discontinued operations on the Companys condensed consolidated statements of operations.

Also included in discontinued operations are the costs associated with closing the stores reported as discontinued operations. These costs were accounted for in
accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities and were approximately $15.6 million for the period ended May 2, 2009 and $11.2 million for the period ended May 3, 2008,
consisting primarily of estimated lease exit costs net of estimated sublease income, employee severance and various other costs related to the closure of stores.

Additional charges or gains 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 this
disposition are subject to significant uncertainty, including the variability in future vacancy periods, sublease income or negotiations with landlords regarding buy-out payments on leases.



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Results from discontinued operations were as follows:



|                                                    |  |                    |         |   |             |   |         |  
|--------------------------------------------------- |  | ------------------ | ------- | - | ----------- | - | ------- | -
|                                                    |  | Three Months Ended |        
|(In thousands)                                      |  | May 2, 2009        |         |   | May 3, 2008 |  
|Store sales                                         |  | $                  | 7,495   |   |             | $ | 19,938  |  
|Costs and expenses:                                 |  |                    |         |   |             |   |         |  
|Cost of sales and occupancy                         |  |                    | 5,723   |   |             |   | 14,665  |  
|Operating and administrative expenses1              |  |                    | 3,843   |   |             |   | 6,274   |  
|Lease exit costs, net of estimated sublease income1 |  |                    | 13,572  |   |             |   | 9,794   |  
|Severance and closure costs1                        |  |                    | 546     |   |             |   | 579     |  
|                                                    |  |                    |         |   |             |   |         |  
|Loss before income taxes                            |  |                    | (16,189 | ) |             |   | (11,374 | )
|Income tax benefit                                  |  |                    |        |   |             |   |        |  
|                                                    |  |                    |         |   |             |   |         |  
|Loss from discontinued operations, net of tax       |  | $                  | (16,189 | ) |             | $ | (11,374 | )
|                                                    |  |                    |         |   |             |   |         |  



| | 1. | Costs associated with store exit activities consisting primarily
of estimated lease exit costs net of estimated sublease income, employee severance and various other costs related to the store closures totaled $15.6 million for the first quarter of fiscal 2009 and $11.2 million for the first quarter of fiscal
2008. For purposes of the table above, $1.5 million and $0.8 million of the costs associated with store exit activities for the first quarter of fiscal 2009 and 2008, respectively, were included in operating and administrative expenses, as these
costs related primarily to consulting and administrative services to close the stores.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Following is a summary of the reserve for
discontinued operations store closures, which is included in total current liabilities as of May 2, 2009 (in thousands):



|                                                   |  |   |        |  
|-------------------------------------------------- |  | - | ------ | -
|Balance at February 2, 2008                        |  | $ |       |  
|Lease exit costs, net of estimated sublease income |  |   | 11,930 |  
|Severance and closure costs                        |  |   | 579    |  
|                                                   |  |   |        |  
|Total provision for store closures                 |  |   | 12,509 |  
|                                                   |  |   |        |  
|Payments for leases and settlements                |  |   | (8,820 | )
|Payments for severance and closure costs           |  |   | (579   | )
|                                                   |  |   |        |  
|Balance at January 31, 2009                        |  | $ | 3,110  |  
|Lease exit costs, net of estimated sublease income |  |   | 13,572 |  
|Severance and closure costs                        |  |   | 546    |  
|                                                   |  |   |        |  
|Total provision for store closures                 |  |   | 17,228 |  
|                                                   |  |   |        |  
|Payments for leases and settlements                |  |   | (3,569 | )
|Payments for severance and closure costs           |  |   | (546   | )
|                                                   |  |   |        |  
|Balance at May 2, 2009                             |  | $ | 13,113 |  
|                                                   |  |   |        |  

4. SHARE-BASED COMPENSATION

The Company accounts for share-based compensation arrangements in accordance with SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123(R)). The Company had share-based compensation expense of
$463,000 for the three months ended May 2, 2009 compared to $481,000 for the three months ended May 3, 2008. Share-based compensation is recorded as a component of selling, general and administrative expenses. As of May 2,
2009, there was $1.8 million of total unrecognized compensation cost related to unvested share-based compensation that is expected to be recognized over a weighted-average period of approximately 1.1 years.

During the first quarter of fiscal 2009, the Company granted options to purchase 742,000 shares of common stock to its employees and non-employee directors. The weighted
average fair value per option granted during the three-month period ended May 2, 2009 and May 3, 2008 was $0.57 and $1.76, respectively. The following table presents the weighted average assumptions used in the Black-Scholes-Merton option
pricing model to value the stock options granted during the three-month period ended May 2, 2009 and May 3, 2008:



|                        |  |                    |   |  |             |  
|----------------------- |  | ------------------ | - |  | ----------- | -
|                        |  | Three Months Ended |  
|                        |  | May 2, 2009        |   |  | May 3, 2008 |  
|Expected dividend rate  |  |                   | % |  |            | %
|Volatility              |  | 83.3               | % |  | 55.4        | %
|Risk-free interest rate |  | 1.75               | % |  | 2.34        | %
|Expected lives (years)  |  | 4.5                |   |  | 4.8         |  



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5. RECONCILIATION OF BASIC SHARES TO DILUTED SHARES

SFAS No. 128, Earnings Per Share, requires earnings per share (EPS) to be computed and reported as both basic EPS and diluted EPS. Basic EPS is computed by dividing net income by the
weighted average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income by the weighted average number of common shares and dilutive common stock equivalents outstanding during the period. Diluted EPS
reflects the potential dilution that could occur if options to purchase common stock were exercised into common stock.

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



|            |  |                    |        |   |                                                       |   |            |  |   |        |  
|----------- |  | ------------------ | ------ | - | ----------------------------------------------------- | - | ---------- |  | - | ------ | -
|            |  | Three Months Ended |       
|            |  | BasicEPS           |        |   | Effect of DilutiveStock Options(treasury
stockmethod) |   | DilutedEPS | 
|May 2, 2009 |  |                    |        |   |                                                       |   |            |  |   |        |  
|Shares      |  |                    | 22,087 |   |                                                       |   |           |  |   | 22,087 |  
|Amount      |  | $                  | (1.88  | ) |                                                       | $ | 0.00       |  | $ | (1.88  | )
|May 3, 2008 |  |                    |        |   |                                                       |   |            |  |   |        |  
|Shares      |  |                    | 22,087 |   |                                                       |   |           |  |   | 22,087 |  
|Amount      |  | $                  | (1.45  | ) |                                                       | $ | 0.00       |  | $ | (1.45  | )

Certain options to purchase common stock were outstanding but were not included in the computation of diluted
earnings per share because the effect would be anti-dilutive. For the three-month periods ended May 2, 2009 and May 3, 2008, there were 3,728,388 and 3,172,594 anti-dilutive options, respectively.

6. LONG-TERM DEBT AND REVOLVING LINE OF CREDIT

The Companys
long-term debt as of May 2, 2009, January 31, 2009, and May 3, 2008 is summarized as follows:



|                                                       |  |             |         |   |                  |   |         |             |  |   |         |  
|------------------------------------------------------ |  | ----------- | ------- | - | ---------------- | - | ------- | ----------- |  | - | ------- | -
|(In thousands)                                         |  | May 2, 2009 |         |   | January 31, 2009 |   |         | May 3, 2008 | 
|Obligations under sale and leaseback:                  |  |             |         |   |                  |   |         |             |  |   |         |  
|California distribution centers                        |  |             | 62,504  |   |                  |   | 62,642  |             |  |   | 63,044  |  
|Virginia distribution center                           |  |             | 51,707  |   |                  |   | 51,769  |             |  |   | 51,954  |  
|                                                       |  |             |         |   |                  |   |         |             |  |   |         |  
|Total long-term debt  distribution center obligations |  |             | 114,211 |   |                  |   | 114,411 |             |  |   | 114,998 |  
|Less current portion                                   |  |             | (836    | ) |                  |   | (823    | )           |  |   | (787    | )
|                                                       |  |             |         |   |                  |   |         |             |  |   |         |  
|Long-term debt  distribution center obligations, net  |  | $           | 113,375 |   |                  | $ | 113,588 |             |  | $ | 114,211 |  
|                                                       |  |             |         |   |                  |   |         |             |  |   |         |  



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##### Table of Contents

The Companys long-term debt is comprised of financing obligations related to the sale-leaseback of its distribution
centers in Stockton, California and Windsor, Virginia. The Company has accounted for the sale-leaseback transactions as financings whereby the net book value of the assets remain on the Companys consolidated balance sheet. The Company also
recorded a financing obligation which is being amortized over the period of the leases (including option periods) and approximates the discounted value of minimum lease payments under the leases. The monthly lease payments are accounted for as
principal and interest payments on the recorded obligations. For further details on the Companys long-term debt, see Note 6 to the consolidated financial statements in the Companys Annual Report on Form 10-K for the fiscal year ended
January 31, 2009.

On June 25, 2007, the Company entered into a secured five-year revolving credit agreement (the Credit Agreement)
with a group of banks that terminated and replaced its existing five-year line of credit agreement and its existing 18-month revolving credit facility. The Credit Agreement allows for cash borrowings and letters of credit under a secured revolving
credit facility of up to $200.0 million. 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 revolving 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 and hereafter-acquired by the Company. Interest is paid in arrears monthly, quarterly, or over the applicable interest period as selected by the Company, with the entire balance payable on June 25, 2012. Borrowings pursuant to the
revolving 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 Excess 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, repurchase
its outstanding common stock, change its business, enter into transactions with affiliates, and dispose of assets including closing stores. 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 Average Excess Availability is 15% or less of the borrowing capacity under the revolving 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 May 2, 2009, the Company was in compliance with its loan covenant requirements, had
$58.9 million in borrowings and $11.2 million in outstanding letters of credit, and had remaining credit available under the Credit Agreement of $64.4 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 early in the fourth quarter.

The borrowing base, based on inventory and accounts receivable value less certain reserves, at the first quarter of fiscal 2009, fiscal year end 2008 and the first quarter of fiscal 2008, respectively, consisted of
the following (in millions):



|                                                                                    |  |             |       |   |                  |   |       |             |  |   |       |  
|----------------------------------------------------------------------------------- |  | ----------- | ----- | - | ---------------- | - | ----- | ----------- |  | - | ----- | -
|                                                                                    |  | May 2, 2009 |       |   | January 31, 2009 |   |       | May 3, 2008 | 
|Account receivable availability                                                     |  | $           | 5.7   |   |                  | $ | 8.0   |             |  | $ | 6.8   |  
|Inventory availability                                                              |  |             | 135.4 |   |                  |   | 153.3 |             |  |   | 189.0 |  
|Less: reserves                                                                      |  |             | (6.6  | ) |                  |   | (10.0 | )           |  |   | (7.9  | )
|                                                                                    |  |             |       |   |                  |   |       |             |  |   |       |  
|Total borrowing base                                                                |  | $           | 134.5 |   |                  | $ | 151.3 |             |  | $ | 187.9 |  
|                                                                                    |  |             |       |   |                  |   |       |             |  |   |       |  
|                                                                                    |  |            
|The aggregate borrowing base as reduced by the following obligations (in millions): |  |             |       |   |                  |   |       |             | 
|                                                                                    |  |             |      
|Ending loan balance                                                                 |  | $           | 58.9  |   |                  | $ | 38.5  |             |  | $ | 58.5  |  
|Outstanding letters of credit                                                       |  |             | 11.2  |   |                  |   | 13.5  |             |  |   | 13.5  |  
|                                                                                    |  |             |       |   |                  |   |       |             |  |   |       |  
|Total obligations                                                                   |  | $           | 70.1  |   |                  | $ | 52.0  |             |  | $ | 72.0  |  
|                                                                                    |  |             |       |   |                  |   |       |             |  |   |       |  



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##### Table of Contents

The availability as of the first quarter of fiscal 2009, fiscal year end 2008 and the first quarter of 2008,
respectively, was (in millions):



|                     |  |   |       |   |  |   |       |   |  |   |       |  
|-------------------- |  | - | ----- | - |  | - | ----- | - |  | - | ----- | -
|Total borrowing base |  | $ | 134.5 |   |  | $ | 151.3 |   |  | $ | 187.9 |  
|Less: obligations    |  |   | (70.1 | ) |  |   | (52.0 | ) |  |   | (72.0 | )
|                     |  |   |       |   |  |   |       |   |  |   |       |  
|Total availability   |  | $ | 64.4  |   |  | $ | 99.3  |   |  | $ | 115.9 |  
|                     |  |   |       |   |  |   |       |   |  |   |       |  

7. INCOME TAXES

The Companys effective tax rate was a provision of 0.8% in the first quarter of fiscal 2009 compared to a benefit of 2.6% in the first quarter of fiscal 2008. Because the Company has recorded a full valuation allowance on its deferred
tax asset, the net operating loss for continuing operations does not reflect any federal or state tax benefit in the first quarter of fiscal 2009.

The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, (FIN48) on February 4, 2007. At January 31, 2009, the Company had $2.0 million in unrecognized tax benefits, the
recognition of which would have an impact of $338,000 on the Companys income tax provision. At the end of the first quarter, it is reasonably possible that the total amounts of unrecognized tax benefits could decrease by $622,000 within the
next 12 months due to the expiration of the statute of limitations.

The Company recognizes accrued interest and penalties related to unrecognized tax
benefits in income tax expense. At May 2, 2009, the Company had accrued $170,000 and $6,000 for the potential payment of interest and penalties, respectively.

As of May 2, 2009, the Company is subject to U.S. federal income tax examinations for tax years 2005 and forward, and is subject to state and local tax examinations for tax years 2004 and forward.

8. FAIR VALUE MEASUREMENTS

The Company adopted SFAS No. 157 for
financial assets and financial liabilities beginning in fiscal 2008 and for nonfinancial assets and liabilities beginning in fiscal 2009.

SFAS
No. 157 prioritizes the inputs used in measuring fair value into the following hierarchy:

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.

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. There were no significant long-lived asset impairment charges during the first quarter of fiscal 2009.



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##### Table of Contents

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The following discussion and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with the accompanying unaudited condensed consolidated financial
statements and notes thereto for the three-month period ended May 2, 2009 and with Managements Discussion and Analysis of Financial Condition and Results of Operations contained in the Companys Annual Report on Form 10-K for the
year ended January 31, 2009. The results of operations for the three-month period ended May 2, 2009, presented herein, are not indicative of the results to be expected for the full year because of, among other things, seasonal factors in
the retail business.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These forward-looking statements reflect the Companys current beliefs and estimates with respect to future events and
the Companys future financial performance, operations and competitive position and may be identified, without limitation, by use of the words may, should, expects, anticipates,
estimates, believes, looking ahead, forecast, projects, continues, intends, likely, plans and similar expressions. Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance or achievements to differ materially from those expressed or implied by such forward-looking statements, including those set
forth in the Annual Report on Form 10-K for the fiscal year ended January 31, 2009 and elsewhere in this Quarterly Report on Form 10-Q. The reader should carefully consider, together with the other matters referred to herein, the risk factors
set forth in the Annual Report on Form 10-K for the fiscal year ended January 31, 2009 as well as in other documents the Company files with the Securities and Exchange Commission (the SEC). The Company may from time to time make
additional written and oral forward-looking statements, including statements contained in the Companys filings with the SEC. The Company does not undertake to update any forward-looking statement that may be made from time to time by or on
behalf of the Company.

Overview

Cost Plus, Inc. is a
leading specialty retailer of casual home furnishings and entertaining products. The stores feature an ever-changing selection of casual home furnishings, housewares, gifts, decorative accessories, gourmet foods and beverages offered at everyday low
prices and imported from more than 50 countries. Many items are unique and exclusive to the Company.

During the first quarter of fiscal 2009, the Company
exited eight media markets by closing 26 stores, 18 of which are reported in discontinued operations for both the current and prior periods and eight of which are reported in continuing operations. The sales and all costs from operating and closing
the discontinued operations stores have been removed from the results of continuing operations and reported in discontinued operations for both the current and prior periods. The 13 stores closed in the first quarter of fiscal 2008 are also reported
as discontinued operations. For the first quarter of fiscal 2009, the loss from discontinued operations was $16.2 million (net of tax) compared to a loss of $11.4 million (net of tax) for the first quarter of fiscal 2008. The loss from discontinued
operations in the first quarter of fiscal 2009 was primarily due to costs to exit the store leases, store closing costs and employee severance.

Net sales
for the first quarter of fiscal 2009 were $184.3 million compared to $201.9 million last year. Comparable store sales for the first quarter decreased 8.9% compared to a 0.6% increase last year. The decrease in comparable store sales for the quarter
was primarily the result of an 8.0% reduction in the average ticket per customer resulting from lower furniture sales and a customer count decline of 1.1%.

The Company reported a net loss of $41.6 million in the first quarter of fiscal 2009, or $1.88 per diluted share, compared to a net loss of $32.0 million, or $1.45 per diluted share, for the first quarter last year. The increase in the net
loss was primarily due to lower same store sales as well as a $4.8 million increase in the net loss related to discontinued operations compared to the first quarter of fiscal 2008. The first quarter gross profit margin decline of 170 basis points
over the prior year is primarily due to higher fixed occupancy expense on lower same store sales. Cost of sales as a percentage of sales were essentially flat compared to last year and included the impact of the inventory liquidations for the eight
store closures.

SG&A expenses as a percentage of net sales were 35.0% for the first quarter of 2009 and 35.8% for the first quarter of 2008. The
decrease was due to savings achieved from ongoing corporate cost reduction initiatives. Additionally, during the first quarter of 2009, there were store closure costs of $5.7 million related to the eight stores that closed during the quarter and
were classified within continuing operations.



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##### Table of Contents

In the first quarter of fiscal 2009, the Company did not open any new stores and closed 26 stores to end the quarter with
270 stores in 30 states.

Results of Operations

The
three months ended May 2, 2009 as compared to the three months ended May 3, 2008

Net Sales Net sales consists almost entirely of
retail sales, but also includes direct-to-consumer sales and shipping revenue. Net sales decreased $17.6 million, or 8.7%, to $184.3 million for the first quarter of fiscal 2009 from $201.9 million for the first quarter of fiscal 2008. Net sales for
the first quarter decreased primarily due to lower comparable store sales, partially offset by higher non-comparable store sales. Comparable store sales decreased 8.9%, or $17.3 million, in the first quarter of fiscal 2009, compared to an increase
of 0.6%, or $1.1 million, in the first quarter of fiscal 2008. Comparable store sales decreased during the first quarter primarily as the result of a reduction in the average ticket and a slight reduction in customer count. As of May 2, 2009,
the calculation of comparable store sales included a base of 258 stores. A store is generally included as comparable at the beginning of the fourteenth month after its grand opening. At the end of the first quarter of fiscal 2009, the Company
operated 270 stores in 30 states versus 274 stores (after adjusting for the 18 stores now classified as discontinued operations) in 30 states at the end of the first quarter of fiscal 2008.

The Company classifies its sales into home and consumables product lines. For the first quarter of fiscal 2009, home accounted for 62% of total sales versus 63% last
year, and consumables accounted for 38% of total sales versus 37% last year.

Cost of Sales and Occupancy Cost of sales and occupancy, which
consists of costs to acquire merchandise inventory and costs of freight and distribution, as well as certain facilities costs, decreased $9.6 million, or 6.6%, to $136.3 million in the first quarter of fiscal 2009. As a percentage of net sales,
total cost of sales and occupancy increased 170 basis points to 74.0% in the first quarter of fiscal 2009 compared to 72.3% in the first quarter of fiscal 2008. Occupancy as a percentage of net sales for the quarter increased as a result of the
deleveraging of the costs on lower comparable store sales. Cost of sales as a percentage of sales, was essentially flat compared to last year.

Selling,
General and Administrative (SG&A) Expenses SG&A expenses decreased $7.7 million, or 10.7%, to $64.5 million in the first quarter of fiscal 2009 compared to $72.2 million in the first quarter of fiscal 2008. As a percentage of
net sales, SG&A expenses were 35.0% in the first quarter of fiscal 2009 compared to 35.8% in the first quarter of fiscal 2008. The decrease was due to savings achieved from ongoing corporate cost reduction initiatives.

Store Closure Costs During the first quarter of fiscal 2009, the costs related to closing the eight stores classified within continuing operations totaled $5.7
million. There were no store closure costs in the first quarter of fiscal 2008 relating to closed stores that were classified within continuing operations.

Store Preopening Expenses Store preopening expenses typically include rent expense incurred prior to opening as well as grand opening advertising and preopening merchandise setup expenses. There were no preopening expenses for the
first quarter of fiscal 2009 compared to $1.9 million for the first quarter of fiscal 2008. The Company did not open any new stores in the first quarter of fiscal 2009 compared to eight new stores in the same period last year. Store preopening
expenses vary depending on the amount of time between the possession date and the store opening, the particular store site and whether it is located in a new or existing market.

Net interest expenseNet interest expense, which includes interest on capital leases and debt, net of interest earned on investments, was $2.8 million for the first quarter of fiscal 2009 compared to $3.0
million for the first quarter of fiscal 2008. The slight decrease in interest expense is due to a lower interest rate on relatively flat borrowings.



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##### Table of Contents

Income TaxesThe Companys effective tax rate was a provision of 0.8% in the first quarter of fiscal 2009
compared to a benefit of 2.6% in the first quarter of fiscal 2008. Because the Company has recorded a full valuation allowance on its deferred tax asset, the net operating loss for continuing operations does not reflect any federal or state tax
benefit in the first quarter of fiscal 2009.

Liquidity and Capital Resources

The Companys cash and cash equivalents balance was $2.5 million at May 2, 2009 and $3.0 million at May 3, 2008. The Company met its short-term liquidity needs and its capital requirements for the
three-month period ended May 2, 2009 with existing cash and cash provided from financing activities. The Company believes that the combination of its cash and cash equivalents, cash generated from operations and available borrowings under
its revolving credit facility will be sufficient to finance its working capital and other capital projects for the next 12 months.

Including fiscal 2008,
the Company has experienced net losses each annual period since fiscal 2006. As of May 2, 2009, the Company had an accumulated deficit of $75.7 million. For fiscal 2007 and for each annual period since fiscal 2004, the Company had decreases in
cash and cash equivalents. There can be no assurance that the business will be profitable in the future or that additional losses and negative cash flows from operations will not be incurred, which could have a material adverse affect on the
Companys financial condition. The Company believes that its existing cash balance, combined with cash flows from operations and borrowings under its revolving credit facility, will be sufficient to enable it to meet planned expenditures under
the turnaround plan through the next 12 months. The turnaround plan includes, among other things, the closure of 26 underperforming stores in the first quarter of fiscal 2009, corporate and distribution center work force reductions that occurred in
the fourth quarter of fiscal 2008, delaying new store expansion, reductions in marketing and capital expenditures, and delaying new hires. The Company is dependent upon its revolving credit facility to fund operating losses and seasonal inventory
purchases. The Company does not plan on fully paying off its revolving credit facility during fiscal 2009. Access to the Companys revolving credit facility is dependent upon meeting its debt covenant and not exceeding the borrowing limit of
the revolving credit facility. There can be no assurance that the Company will achieve or sustain positive cash flows from operations or profitability. If the Company is unable to maintain adequate liquidity, future operations will need to be scaled
back or discontinued.

Cash Flows From Operating Activities Net cash used in operating activities totaled $20.3 million for the first quarter of
fiscal 2009 compared to $34.7 million in the same period last year, a decrease of $14.4 million. The decrease in net cash used in operations compared to last year was primarily due to decreased merchandise inventories and a reduction in accounts
payable compared to last year, partially offset by a higher net loss and a decrease in other liabilities.

Cash Flows From Investing ActivitiesNet
cash used in investing activities totaled $0.8 million for the first quarter of fiscal 2009, a $4.8 million decrease compared to the same period last year. Net cash used in investing activities decreased mainly because there was less spending
related to new store projects as there were no new stores opened during the first quarter of fiscal 2009 compared to 8 new stores in the prior year.

Cash Flows From Financing ActivitiesNet cash provided by financing activities was $19.8 million for the first quarter of fiscal 2009 compared to $39.9 million in the same period last year. Borrowings under the Companys
revolving credit line increased $20.4 million as of the end of the first quarter of fiscal 2009 from the level at January 31, 2009, compared to an increase of $40.5 million for the same period last year. Principal payments on long-term debt
were $200,000 compared to $189,000 in fiscal 2008 and principal payments on capital lease obligations were $391,000 compared to $340,000 in fiscal 2008.

Revolving Line of CreditOn June 25, 2007, the Company entered into a secured five-year revolving credit agreement (the Credit Agreement) with a group of banks that terminated and replaced its existing five-year line
of credit agreement and its existing 18-month revolving credit facility. The Credit Agreement allows for cash borrowings and letters of credit under a secured revolving credit facility of up to $200.0 million. 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
revolving 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 and hereafter-acquired by the Company. Interest is paid in arrears
monthly, quarterly, or over the applicable interest period as selected by the Company, with the entire balance payable on June 25, 2012. Borrowings pursuant to the revolving 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 Excess 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.



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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, repurchase its outstanding common stock, change its business, enter into transactions with affiliates, and dispose of assets including closing stores. 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 Average Excess Availability is 15% or less of the borrowing capacity under the
revolving 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 May 2, 2009, the Company was
in compliance with its loan covenant requirements, had $58.9 million in borrowings and $11.2 million in outstanding letters of credit, and had remaining credit available under the Credit Agreement of $64.4 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 early in the fourth quarter.

Summary Disclosure about Contractual Obligations and Commercial Commitments

Borrowings under the Companys revolving credit line increased $20.4 million as of May 2, 2009 from the amount disclosed as of January 31, 2009. Otherwise, the Company does not believe there were any
other significant changes to its contractual obligations that were not in of the ordinary course of business, from those reported on its Annual Report on Form 10-K for the fiscal year ended January 31, 2009.

Critical Accounting Policies

The Companys condensed
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Preparation of these statements requires management to make judgments and estimates. Some accounting
policies have a significant impact on amounts reported in these financial statements. A summary of significant accounting policies and a description of accounting policies that are considered critical may be found in our Annual Report on Form 10-K
for the fiscal year ended January 31, 2009, in the Notes to the Consolidated Financial Statements (Note 1) and the Critical Accounting Policies and Estimates section.

Impact of Recent Accounting Pronouncements

On February 3, 2008, the Company adopted SFAS No. 157,
Fair Value Measurements. SFAS No. 157 clarifies the definition of fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value
measurements. This statement does not require any new fair value measurements. Additionally, on February 1, 2009, in accordance with the FASB Staff Position (FSP) SFAS No. 157-2, Effective Date of FASB Statement
No. 157, the Company adopted the provisions of SFAS No. 157 for all other nonfinancial assets and nonfinancial liabilities. Refer to Note 8 within this Quarterly Report on Form 10-Q for additional information.

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) selling season. Due to the importance of the Holiday selling season, the fourth quarter of each fiscal year has
historically contributed, and the Company expects it will continue to contribute, a disproportionate percentage of its net sales and most of its net income, if any, for the entire fiscal year.



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Available Information

The Companys website address is www.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 Exchange Act, as soon as reasonably practicable after such materials are electronically filed
with, or furnished to, the SEC. Cost Plus, Inc. was organized as a California corporation in November 1946.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

There
have been no material changes to the Companys market risk from those disclosed in the Companys Form 10-K filed for the fiscal year ended January 31, 2009.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Evaluation of Disclosure Controls and
Procedures

The Companys management evaluated, with the participation of its principal executive officer and its principal financial officer, the
effectiveness of its disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The Company maintains disclosure controls and procedures that are designed to ensure that the information disclosed in
the reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to the Companys management,
including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

As of
May 2, 2009, the Companys management, including its principal executive officer and principal financial officer, concluded that its disclosure controls and procedures are effective. This conclusion is based on managements
evaluation of the effectiveness of the design and operation of the Companys disclosure controls and procedures. The Companys evaluation and conclusions set forth above have not been audited by the Companys independent
registered public accounting firm.

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 May 2, 2009 that has materially affected,
or is reasonably likely to materially affect, the Companys internal control over financial reporting.



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PART II. OTHER INFORMATION



|ITEM 6. | EXHIBITS
|------- | --------



|(a) | Exhibits
|--- | --------



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



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SIGNATURE

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



|                    |  |  |  |                            |  |                                                                                                             
|------------------- |  |  |  | -------------------------- |  | ------------------------------------------------------------------------------------------------------------
|                    |  |  |  | COST PLUS, INC. Registrant
|                    |  |  | 
|Date: June 11, 2009 |  |  |  | By:                        |  | /s/ Jane L. Baughman                                                                                        
|                    |  |  |  |                            |  | Jane L. Baughman Executive Vice President Chief Financial Officer (Principal Financial & Accounting Officer)



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INDEX TO EXHIBITS



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



18