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Costco Memberships Help Retailer Beat Street

For the first quarter ended November 25, Costco Wholesale Corp. posted net income of $416 million, or 95 cents per diluted share, versus $320 million, or 73 cents per diluted share, in the prior-year period. Excluding the impact of gasoline price and currency fluctuation, comparable store sales for the company’s warehouse clubs in the United States came in up 6% while those at units in international markets advanced by 7% for a company total gain of 6%.

On average, financial analysts polled by Thomson Reuters anticipated earnings per share of 93 cents for the first quarter.

Citi Research analyst Deborah Weinswig attributed Costco’s beating estimates to higher membership fee income, higher interest income and in-line sales, general and administrative expenses, partially offset by a lower than expected six basis point gross margin rate gain. She characterized the Costco first quarter beat as a “modest positive.”

Last year’s net income was negatively impacted by a $12 million, or three cents per diluted share, charge  related to settlement of an income tax audit of the company’s Mexico operation, and a $17 million, or four cents per diluted share, charge on contributions to an alcoholic beverage law reform initiative in Washington State. Excluding gas and currency fluctuation impact, comps for U.S. stores  advanced by 7%, while those for clubs in other parts of the world gained 9% for a company total increase of 7%.

Hurricane Sandy had a “couple” of percentage point negative impact on comparable store sales in the Northeast, Costco related in a conference call. Small electrics was a strong contributor to a low double-digits comp improvement in what the retailer considers its softlines business, the company asserted.

Net sales in the quarter were $23.20 billion versus $21.18 billion in the period last year.

Costco operates 621 warehouses, including 448 in the U.S. and Puerto Rico, 85 in Canada, 32 in Mexico, 23 in the United Kingdom, 13 in Japan, nine in Taiwan, eight in Korea and three in Australia. The retailer plans to open one additional new warehouse in Gwangmyeong, Korea before the end of calendar year 2012, it said. The company also operates e-commerce web sites, at in the U.S., in Canada and in the United Kingdom.