Costco has same-store success

Don Hogsett, May 31, 2004

Helped by surging same-store sales, which climbed at a double-digit pace, Costco Warehouse Corp. drove third-quarter profits up almost a third, 29.2 percent, to $198.7 million from $153.8 million last year.

Sales at the multi-national operator of membership warehouse clubs rose 14.2 percent, to $10.7 billion from $9.3 billion. More importantly to the bottom line, same-store sales rocketed up 11 percent.

Overall sales would have climbed modestly higher, 16 percent in the third quarter and 15 percent for the nine months, but for a change in the way the retailer accounts for vendor allowances. The new accounting change reduces net sales and merchandise costs by an equal amount, but has no impact on margins or the bottom line.

Fueling the big earnings increase, in addition to the stronger same-store sales, Costco pushed interest and miscellaneous income up 54.6 percent, to $14.2 million from $9.2 million, dropping $5.1 million in extra cash straight to the bottom line.

Putting earnings under some pressure, average gross margin narrowed 120 basis points, or 1.2 percentage points, to 10.6 percent from 11.8 percent a year ago. Acting as a partial offset, operating costs were narrowed slightly, to 9.8 percent of sales from 9.9 percent a year ago.

Costco Wholesale Corp.

Qtr. 5/9 (x000) 2004 2003 % chg
a-Retail sales, excluding $224.5 million in membership fees, up 13.3 percent from $9.5 million during the prior-year third quarter. For the 36 weeks, membership fees increased 12.9 percent, to $654.9 million from $580 million.
Sales $10,672,737a $9,344,959a 14.2
Oper. income (EBIT) 306,199 261,439 17.1
Net income 198,658 153,780 29.2
Per share (diluted) 0.42 0.33 27.3
Average gross margin 10.6% 11.8%
SG&A expenses 9.8% 9.9%
36 weeks 2004 2003 % chg
Sales 32,312,773 28,275,854 14.3
Oper. income (EBIT) 937,534 829,053 13.1
Net income 585,625 481,574 21.6
Per share (diluted) 1.23 1.02 20.6
Average gross margin 10.7% 10.7%
SG&A expenses 9.8% 9.8%

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