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Costco sees softlines as “standouts”

Issaquah, Wash. – Among the “standouts” in the softlines category, which posted “strong” mid-teen comps, were domestics and home furnishings during Costco Wholesale Corp.’s second quarter, the warehouse club reported during its earnings call.

Total net sales for the 12-week period ended Feb. 14, increased approximately 11% to $18.36 billion from $16.49 billion in the year-ago quarter. Comparable club sales including the positive impact of gas and foreign currencies were 9% for the total company, 5% for the U.S. and 26% for International. Excluding the impact of gas and foreign currencies, comps came in at 3% for the total company, 2% for the U.S. and 10% for International.

Net income was $299 million, or 67 cents per diluted share, compared to $239 million, or 55 cents EPS in Q2 2009.

Other pluses, said cfo Richard Galanti, included: continued growth for the company’s Costco.com and Costco.ca ecommerce businesses, with profits up over last year; and an 8% increase in traffic.

Year to date, net sales increased 8% to $35.28 billion from $32.52 billion in the first half of fiscal 2009. Comp club sales, including the positive impact of gas and foreign currencies, were 6% for the total company, 3% for the U.S. and 19% for International. Excluding the impact of gas and foreign currencies, comps came in at 3% for the total company, 2% for the U.S. and 9% for International.

Net income for the first half of fiscal 2010 was $565 million, or $1.27 per diluted share, compared to net income for the first half of fiscal 2009 of $502 million or $1.14 per diluted share. The company recorded a $22 million pre-tax charge (3 cents per diluted share) related to a change in employee benefits in the second quarter of fiscal 2010 whereby certain unused time off will now be paid annually to the employee.

On the topic of real estate, Costco opened one new club and relocated a second, following the opening of six new sites in the first quarter. The company plans to open only one new club in the third quarter – this one in Pacoima, Calif. – but will ramp up its new club openings in the fourth quarter with up to eight new sites.

“With bad luck, it could be five,” Galanti added. “The likely possibility is probably six or seven. We are pushing for eight. They all will be under construction…so our best guess at this point is 17 new, plus the relocations would be 16 net, and maybe 15 or 14, but we will see.”

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