Rising Sales Boost Costco Profits

Don Hogsett, December 13, 2004

Issaquah, Wash. — Helped by a double-digit gain in sales, first fiscal quarter profits at Costco Wholesale Corp. shot up 20.6 percent, to $193.2 million from $160.2 million a year ago.

Sales climbed 10 percent, to $11.3 billion from $10.3 billion last year, and same-store sales advanced 7 percent. Sales would have risen even higher, but were capped by a change in the way the retailer accounts for vendor coupons and rebates. Excluding the accounting change, overall sales would have climbed 11 percent, and same-store sales 8 percent. The change had no impact on gross profit or net income.

Wall Street took a dim view of the lower sales volumes engendered by the accounting change and pushed Costco stock down 2 percent, or $1 a share, to $47.90 in the hours after the news came out on Dec. 9.

Margins and costs both held steady during the opening quarter, margins unchanged at 8.9 percent, and costs unchanged at 10 percent of sales.

In a lift to the bottom line, the retailer added $15.6 million in interest and miscellaneous income, almost double the $7.9 million recorded the prior year. The interest income more than offset interest expense, which climbed 13.8 percent, to $9.6 million from $8.5 million.

Costco Wholesale Corp.

Qtr. 11/21 (x000) 2004 2003 % change
a-Net sales, excluding membership fees of $238.1 million, up 12.5 percent from $211.7 million during the same period a year ago.
b-First fiscal quarter results include a $2.8 million provision for impaired assets and closing costs, compared with a $4 million provision last year; and interest and miscellaneous income of $15.6 million, up 97.3 percent from $7.9 million a year ago.
Sales $11,339,944a $10,309,822a 10.0
Oper. Income (EBIT) 297,845 250,818 18.7
Net income 193,153b 160,175b 20.6
Per share (diluted) 0.40 0.34 17.6
Average gross margin 8.9% 8.9%
SG&A expenses 10.0% 10.0%

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