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Costco Posts Solid Results

Membership warehouse club Costco reported relatively positive results for its fourth quarter and fiscal year.

In a generally tough retail year, Costco managed to grow its top line revenues by 7% and hold income roughly flat. At No. 21 on the HTT Top 50 Retailing Giants, Costco had 2006 home textiles sales of $220.0 million.

Fourth-quarter (16 weeks, ended Sept. 2) sales rose 3% to $20.1 billion, while comparable store sales were up 5%.

Earnings in the quarter reached $372.4 million, or $0.83 per diluted share, advancing from $355.6 million, or $0.75 per diluted share, an 11% boost.

Net income for fiscal 2007 was $1.08 billion, down 1.8% from $1.10 billion in 2006. Earnings per diluted share, however, edged up 3.0% to $2.37.

Sales rose 6.9% to $63.1 billion for the year. Comp-store sales were up 6% for the year (5% at U.S. units; 9% internationally).

The 520-warehouse chain plans to open 10 or 11 new units by year end. Beyond the 385 locations in the United States, Costco's three biggest foreign territories are Canada, with 71 units, Mexico with 30, and the U.K. with 19 clubs.

Costco Wholesale Corporation

Qtr. 9/2 ($ millions) 2007 2006 % change
a. Figures are for 16-week fourth quarter in 2007, compared with 17-week fourth quarter in 2006.
b. Fiscal 2007 fourth quarter results were negatively affected by a non-recurring, non-cash pre-tax charge of $56.2 million ($35.8 million, or $.08 per share, after-tax) to increase the company's deferred membership revenue liability (and reduce membership fee revenue).
c.These items were recorded in the second and third quarters of fiscal 2007: a $95.3 million non-cash pre-tax charge related to revisions for estimated sales returns; a pre-tax charge of $47.3 million to reduce adverse income tax consequences to employees arising from the review of stock; and a $10.1 million pre-tax benefit primarily to merchandise costs for an excise tax refund on prior merchandise sales of phone cards. Excluding these items and the adjustment in note (b.) above, net income for the 2007 fiscal year would have been $1.20 billion, or $2.63 per diluted share, representing a 14% increase in earnings per share over the prior fiscal year.
Sales $20,089a $19,496a 3.0%
Oper. Income (EBIT) 555 514 8.0
Net income 372b 356 4.5
Per share (diluted) 0.83 0.75 10.7
Average gross margin 10.7% 10.4%
SG&A expenses 9.8% 9.6%
Fiscal Year 2007 2006 % change
Sales $63,088 $58,963 7.0%
Oper. Income (EBIT) 1,608 1,626 (1.1)
Net income 1,083c 1,103 (1.8)
Per share (diluted) 2.37 2.30 3.0
Average gross margin 10.5% 10.5%
SG&A expenses 9.9% 9.7%


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