Monarch Activist Partners Raises Stake in Cost-U-Less (CULS), Continues to Urge Company To Sell

In a 13D filing on Cost-U-Less, Inc. (NASDAQ: CULS), Monarch Activist Partners disclosed a 6.4% stake (257K shares) in the company. This is up from the 5.3% stake the firm disclosed on 09/08. The firm disclosed a letter to the company strongly urging the company explore a sale.

The firm said, "While we appreciate your desire to grow the business organically, it is apparent that the market refuses to assess fair value to the company in its current form. A quick review of your peer group clearly states this point. Currently, Pricesmart (NASDAQ: PSMT), your self-acknowledged closest competitor, trades at an Enterprise Value to EBITDA multiple of close to 16 times, whereas CULS trades at approximately a 4.5 multiple. Taking a very conservative valuation approach by applying a 40% discount to the median EBITDA multiple of your industry peer group, CULS is worth at least $12 a share." The firm also said, " In light of the issues raised in this letter and as a significant shareholder we ask you and the Board to engage the services of an investment banker to facilitate the sale of the company."

A Copy of the Letter:

Dear Mr. Meder:

I am writing this letter on behalf of Monarch Activist Partners LP("Monarch") which is currently the beneficial owner of approximately 6% ofCost-U-Less ("CULS").

The purpose of this letter is to reiterate what Monarch has verbally statedon multiple telephone calls over the last few months with yourself and Mr.Martin Moore, which is: we strongly urge you to explore the sale of the company immediately. As mutually acknowledged, we are not alone is this equest, as other shareholders of size have asked for the same.

While we appreciate your desire to grow the business organically, it isapparent that the market refuses to assess fair value to the company in itscurrent form. A quick review of your peer group clearly states this point.Currently, Pricesmart (PSMT), your self-acknowledged closest competitor,trades at an Enterprise Value to EBITDA multiple of close to 16 times,whereas CULS trades at approximately a 4.5 multiple. Taking a veryconservative valuation approach by applying a 40% discount to the medianEBITDA multiple of your industry peer group, CULS is worth at least $12 ashare.

Compounding matters, the business, according to your latest earningsrelease, is dealing with a 9% increase in operating expenses which islargely attributed to rising utility expenses, an issue that does not lenditself to a quick resolution. Outside of operating expenses, the cost ofbeing public with Sarbanes Oxley expenses and other regulatory costs makesthe rationale of "going it alone" far less viable.

We fail to see how even the most ambitious growth plan will resolve the deepmultiple discount the market attributes to CULS. Not to mention, given thecapital required to open each new store combined with all the site specificrequirements, rapid expansion appears highly improbable. In light of theissues raised in this letter and as a significant shareholder we ask you andthe Board to engage the services of an investment banker to facilitate thesale of the company. While you have stated that the Board continues to lookat all options and keeps an open mind to any potential offer, it is time forthe company to take a far more proactive stance.

Should the company fail to act on our recommendation, we reserve all of ouroptions, including seeking board representation if necessary.

I look forward to your response.

Very truly yours,

Sohail Malad

Managing Partner