Costco's profit up sharply in latest quarter

Staff reports Updated: May 27, 2010 at 12:00 am • Published: May 27, 2010

PORTLAND, Ore. — Shoppers at Costco Wholesale Corp. are beginning to pick up a few modest extras such as doormats and coffee makers along with their must-haves like food, the company said Thursday.

The stronger sales to everyday shoppers and small businesses helped drive the nation's largest warehouse club's net income up 46 percent for the quarter.

"I think if there is a silver lining to this horrible economy over the last year and a half, it is that the warehouse clubs and us in particular, are the extreme value proposition," said Richard Galanti, Costco's chief financial officer. "People are shopping with us more frequently than they used to."

Costco reported that its profit climbed sharply in the fiscal third quarter on stronger sales and membership revenue, sending its shares up in trading.

The company, based in Issaquah, Wash., reported that it earned $306 million, or 68 cents per share. That's up from $210 million, or 48 cents per share, a year ago. Adjusted for special items in both periods, the company earned 66 cents per share for the quarter versus 53 cents per share in the prior year.

Revenue grew more than 12 percent to $17.78 billion.

Analysts polled by Thomson Reuters, on average, expected Costco to earn 66 cents per share and $17.63 billion in revenue. Analyst estimates typically exclude one-time items.

Costco said it saw more business from both everyday consumers and businesses such as small restaurants, which helped keep the bulk of the company's business in food. But it is also seeing small luxuries like patio furniture sell out quickly while television sales slumped.

Galanti said shoppers are coming in more often but average spending each visit fell slightly. Shoppers are buying more food and necessities and fewer televisions than they did last year, he said, although that is somewhat offset by sales of housewares, exercise equipment and other discretionary items.

"Yes we're doing a pretty good job of fighting and tackling," he told investors Thursday. "My view is we've got them coming in more frequently, and it is not like they're buying it somewhere else. And when they start buying it, they are buying it at us."

Sales at stores open at least a year grew 10 percent. Excluding the impact of higher gas prices and changes in currency exchange rates, those sales rose 4 percent. These sales are considered a key indicator of retailer's financial health because they exclude results from stores that have opened or closed over the past year.

At the end of the quarter, Costco ran 568 warehouses, including two in Colorado Springs. It has locations in the U.S., Canada, Mexico, the United Kingdom, Korea, Taiwan, Japan, and Australia. Costco said it plans to open five more locations by Aug. 29, the end of its fiscal year.

Shares of Costco rose $2.76, nearly 5 percent, to close at $58.74 Thursday.

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