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Costco Numbers Strong In Second Quarter

Helped by a $42.1 million tax break, and a strong 6 percent boost in same-store sales, second fiscal quarter profits at cjumped 34.7 percent, to $305.5 million from $226.8 million.

And profits would have climbed even higher but for a $16 million one-time charge stemming from the way it accounts for leases.

Costco, like most other big U.S. retailers, was hit with such a non-cash accounting charge this year in response to a recent Securities and Exchange Commission clarification.

Driving the strong gain at the bottom line was a $52.1 million tax break, covering an eight-year period, resulting from a settlement of a transfer pricing dispute between the United States and Canada.

In another boost to profits, average gross margin gained slightly, 10 basis points, or one-tenth of a percentage point, to 10.9 percent from 10.8 percent. Costs dipped slightly as well, 10 basis points, to 9.5 percent.

But pulling out the tax break, and the $16 million one-time charge, operating profits, while still strong, rose at a slower pace of 10 percent, to $393.9 million from $358.2 million last year.

Sales at the no-frills warehouse operation climbed 9.6 percent, to $12.7 billion from $11.5 billion. More importantly, same-store sales improved 7 percent, on par with last year. Domestic same-store sales rose 6 percent, while international comps rose 12 percent, ahead of a 10 percent increase reported in the same period a year ago.

Through the first six months of the year, Costco profits, helped by the tax break, climbed 28.8 percent, to $498.6 million from $387 million last year. Sales during the first half of the fiscal year grew 9.8 percent, to $24.2 billion from $22.1 billion.

Costco Wholesale Inc.

Qtr. 2/13 (x000) 2005 2004 % change
a. Total company sales, including $245.5 million in membership fees, up 12.2 percent from $218.8 million during the same period a year ago.
b. Second quarter results include a $4 million provision for impaired assets and closing costs, compared with $3 million last year; interest income of $24.8 million, up 89.6 percent from $13.1 million last year; and a $100.2 million provision for income taxes, down 24.7 percent from $133.2 million during the prior-year period.
c. Total sales, including $483.6 million in membership fees, up 12.3 percent from $430.4 million last year.
d. Six-month results include a $6.8 million provision for impaired assets and closing costs, compared with $7 million a year ago; interest income of $40.4 million, up 92.5 percent from $21 million last year; and an income tax provision of $213.7 million, down 6 percent from $227.3 million last year.
Sales $12,658,077a $11,548,974a 9.6
Oper. Income (EBIT) 393,895 358,176 10.0
Net income 305,452b 226,792b 34.7
Per share (diluted) 0.62 0.48 29.2
Average gross margin 10.9% 10.8%
SG&A expenses 9.5% 9.6%
12 months
2004 2003 % change
Sales 24,236,080c 22,070,452c 9.8
Oper. Income (EBIT) 697,340 616,994 13.0
Net income 498,605d 386,967d 28.8
Per share (diluted) 1.02 0.82 24.4
Average gross margin 10.8% 10.7%
SG&A expenses 9.8% 9.8%


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