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Costco profit falls 3.2% in Q4

Susan Andrews, Don Hogsett -- Home Textiles Today, October 13, 2003

With margins under pressure, costs climbing higher and facing fresh competition as rival Sam's Club shows signs of renewed strength, Costco Wholesale Corp. said fourth-quarter profits slipped by 3.2 percent, to $239.4 million from $247.4 million last year.

Sales at the warehouse club giant advanced by 11.3 percent, to $13.4 billion from $12.1 billion a year ago, fueled in part by continued expansion. Same-store sales jumped up by 7.0 percent.

Putting pressure on the bottom line, average gross margin thinned modestly, by ten basis points, or one-tenth of a percentage point, to 10.7 percent from 10.8 percent last year. At the same time, costs edged up by 30 basis points, or three-tenths of a percentage point, to 9.8 percent of sales from 9.5 percent the prior year.

Pressured by the rising costs and margin erosion, operating profits tumbled by 28.3 percent, to $110.8 million from $154.6 million last year.

Siphoning off more cash from the bottom line, interest expense, while still modest, jumped up by 46.4 percent, to $11.7 million from $8.0 million a year ago. But more than offsetting higher interest costs, interest income and miscellaneous income totaled $12.7 million, up 13.5 percent from $11.2 million last year.

Acting as a drag was a $4.0 million charge for asset impairment and store closing costs, down from $5 million during the same period a year ago.

For all of last year, Costco profits edged up by 3.0 percent, to $721 million from $700 million in 2002. Sales advanced by 9.7 percent, to $41.7 million from $38.0 million. Same-store sales for the 12-month period increased by 5 percent.

Costco Wholesale Corp.

Qtr. 8/31 (x000) 2003 2002 % change
a-Net sales, excluding membership fees and other revenues. Total sales during the fourth quarter were $13.7 billion, up 11.3 percent from $12.3 billion last year. For the full year, total sales rose by 9.8 percent, to $42.5 billion from $38.8 billion in 2002.
b-Fourth-quarter results include $5.5 million in pre-opening expenses, down 61.7 percent from $14.4 million last year; a $4 million provision for impaired assets and store closing costs, down from $5 million last year; and miscellaneous income of $12.7 million vs. $11.2 million a year ago. Full-year results include$36.6 million in pre-opening costs, compared with $51.3 million a year ago; a $19.5 million provision for asset impairment and store closing costs, compared with $21.1 million last year; and miscellaneous income of $38.5 million vs. $35.7 million last year.
Sales $13,416,845a $12,050,797a 11.3
Oper. income (EBIT) 110,834 154,558 -28.3
Net income 239,426b 247,401b -3.2
Per share (diluted) 0.51 0.52 -1.9
Average gross margin 10.7% 10.8%
SG&A expenses 9.8% 9.5%
12 months
Sales 41,692,699a 37,993,093a 9.7
Oper. income (EBIT) 359,918 434,436 -17.2
Net income 721,000b 699,983b 3.0
Per share (diluted) 1.53 1.48 3.4
Average gross margin 10.7% 10.6%
SG&A expenses 9.8% 9.4%


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