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Profits Jump At Costco

Helped by rising sales and improved cash management, Costco Wholesale Corp. reported a first fiscal quarter profit of $215.8 million, up 11.7 percent from $193.2 million last year.

A good chunk of the profit, however, came from shrewd management of its cash resources, including a deep cut in interest expense and a jump in interest income from money it put in the bank. Pull those items out of the equation, and earnings from operations rose at a more subdued pace of 7.7 percent, to $326.7 million from $303.4 million last year.

Putting a modest damper on profits, Costco recorded a pre-tax charge of about $7.6 million, or a penny a share, stemming from damage from Hurricane Wilma in Florida. That was modestly higher than the $6.4 million in damages recorded a year ago from four Florida hurricanes.

Sales at the warehouse club operator climbed 11.7 percent, to $12.7 billion from $11.3 billion the year before. Membership fees grew at a pace of 10.3 percent, to $262.6 million from $238.1 million. Same-store sales rose an impressive 9 percent.

Average gross margin narrowed slightly, 10 basis points, or one-tenth of a percentage point, to 10.5 percent from 10.6 percent the prior year. Acting as an offset, operating costs declined 10 basis points, or a tenth of a percentage point, to 9.9 percent of sales from 10 percent a year ago.

Wall Street and investors weren't wowed by the numbers, and had clearly been expecting more — notably stronger sales. In late trading on Dec. 8, the day the numbers came out, they drove the price of Costco down 92 cents a share, or 1.9 percent.

Costco Wholesale Corp.

Qtr. 11/20 (x000) 2005 2004 % change
a. Net sales, excluding membership fees of $262.6 million, up 10.3 percent from $238.1 million during the same period a year ago. Total sales of $12.9 billion rose 11.7 percent from $11.6 billion last year.
b. First fiscal quarter results include a $1.2 million provision for impaired assets and store closing costs, compared with $2.8 million last year; and interest and miscellaneous income of $25.5 million, up 63.8 percent from $15.6 million the preceding year.
Sales $12,644,799a $11,339,944 11.7
Oper. income (EBIT) 326,706 303,445 7.7
Net income 215,918b 193,153b 11.7
Per share (diluted) 0.45 0.40 12.5
Average gross margin 10.5% 10.6%
SG&A expenses 9.9% 10.0%

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