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Costco boosts sales, profits in Q3

With sales climbing higher at a double-digit pace, and margins shooting up at an unusually rapid pace, especially for a no-frills warehouse club, third-quarter profits at Costco Wholesale Corp. raced ahead by 18.0 percent, to $153.8 million to $130.4 million last year.

Sales climbed higher by 10.8 percent, to $9.3 billion from $8.4 billion last year. Remarkably, in a persistently weak environment for most other retailers, same-store sales advanced by 6.0 percent.

Wall Street investors stood to attention and saluted, pushing Costco shares up by 1.9 percent in value, or $0.68 a share, to $36.60.

Driving profits up in addition to the stronger sales, Costco managed to widen its margins substantially, by 50 basis points, or half a percentage point, to 10.6 percent from 10.1 percent a year ago, an unusually steep climb for a low-cost, low-price retailer.

Costco earned more interest on the money it had in the bank than it paid on the money it had borrowed, putting it well ahead of the game. Interest income in the third quarter totaled $9.2 million, compared with interest expense of $8.7 million, creating a cash surplus of almost half a million dollars.

Taking a somewhat larger bite out of profits, operating costs climbed modestly higher, by 30 basis points, or three-tenths of a percentage point, to 9.9 percent of sales from 9.6 percent the preceding year

Costco Wholesale Corp.

Qtr. 5/11 (x000) 2003 2002 % change
a-Net sales, excluding membership fees in the quarter of $198.1 million, up 10.1 percent from $179.9 million last year; and membership fees during the nine months of $580.0 million, up 10.7 percent from $523.9 million a year ago.
b-Third-quarter results include a $6.0 million charge for store closing costs and asset impairment, compared with $4.5 million last year; nine-month results include a $15.5 million charge, compared with $16.1 million in the year-ago period.
Sales $9,344,959a $8,436,807a 10.8
Oper. income (EBIT) 255,586 220,802 15.8
Net income 153,780b 130,370b 18.0
Per share (diluted) 0.33 0.28 17.9
Average gross margin 10.6% 10.1%
SG&A expenses 9.9% 9.6%
Nine months
Sales 28,275,854a 25,942,296a 9.0
Oper. income (EBIT) 797,938 766,907 4.0
Net income 481,574b 452,582b 6.4
Per share (diluted) 1.02 0.96 6.3
Average gross margin 10.7% 10.5%
SG&A expenses 9.8% 9.4%


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