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Costco profit falls 3.2% in Q4

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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