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Costco Likes Tax Break

Don Hogsett, Staff Staff -- Home Textiles Today, October 10, 2005

Issaquah, Wash. — Getting a big lift from a lower tax rate and a smaller tax bill, fourth quarter profits at Costco Wholesale Corp. climbed 19.5 percent, to $354.7 million from $296.8 million last year.

But roughly half of the lift to the bottom line came from the break in taxes, which slashed the retailer's bill 17.3 percent, or $144.2 million, yielding a cash savings of $30.1 million. Excluding the tax relief, earnings rose at a more moderate pace of 9.4 percent, to $324.6 million.

Operating profits at the warehouse giant inched up just 1 percent, to $484.6 million from $479.6 million. Providing a big lift to the bottom line, in addition to lower taxes, were two other non-operating items, a big cut in interest costs, and a jump in interest income and miscellaneous income. Interest expense was whittled 32.7 percent, to $7.3 million from $10.9 million last year, a cash savings of $3.6 million.

Costco Wholesale Corp.

Qtr. 8/28 (x000) 2005 2004 % change
a. Net sales during the fourth quarter, excluding $339.8 million in membership fees, compared with $306.4 million last year. For the 12 months, membership fees totaled $1.1 billion vs. $961,280 the prior year.
b. Fourth quarter results include $10.4 million in pre-opening expenses, compared with $11.6 million last year; a $5.5 million provision for impaired assets and closing costs, compared with $2.5 million during the same period a year ago; miscellaneous income of $38.6 million $16.5 million a year ago; and an income tax provision of $144.2 million, down 17.3 percent from $174.3 million.
c. 12-month results include $53.2 million in pre-opening costs vs. $30.5 million last year; a $16.4 million provision for impaired assets and closing costs, compared with $1.0 million last year; miscellaneous income of $109.1 million, compared with $51.6 million a year ago; and an income tax provision of $485.9 million, down 6.2 percent from $518.2 million the prior year.
Sales $16,362,437a $14,832,939a 10.3
Oper. income (EBIT) 484,591 479,565 1.0
Net income 354,699b 296,768b 19.5
Per share (diluted) 0.73 0.62 17.7
Average gross margin 10.4% 10.8%
SG&A expenses 9.6% 9.6%
12 months
Sales 51,862,072a 47,145,712a 10.0
Oper. income (EBIT) 1,543,926 1,417,099 8.9
Net income 1,063,092b 882,393c 20.5
Per share (diluted) 2.18 1.85 17.8
Average gross margin 10.6% 10.7%
SG&A expenses 9.7% 9.8%


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