'Block & Tackle' Retailing Drives Profits at Costco

ISSAQUAH, Wash. -- Strong retailing basics helped drive profits in the fiscal 2006 first quarter at Costco Wholesale Corp., according to c.f.o. Richard Galanti, who spoke during the retailer's Q1 2006 investor's conference call yesterday.

Galanti explained how, for example, a commitment to retail discipline starts right at the top, with president and c.e.o. Jim Sinegal. "Better discipline with SKU counts, for example," Galanti explained. "We try to have 4,000 active SKUs in the warehouse. As that number creeps up toward 4,250, Jim will offer his assistance to buyers who don't bring that number down -- he says he'll cut it down to 4,000 in 15 minutes for them. Otherwise, that translates to 250 items that have to share a pallet position and have to be hand stacked."

Such discipline has paid off. For Costco's Q1 2006, sales increased 12 percent to $12.66 billion from $11.34 billion last year, with sales up 9 percent at warehouses open at least one year. Total revenue, which includes membership fees, rose to $12.93 billion from $11.58 billion.

The company's quarterly earnings totaled $215.8 million, or 45 cents per share, up from $193.2 million, or 40 cents per share, a year earlier. The latest quarter included a charge of about 1 cent per share from damage due to Hurricane Wilma in Florida, while the prior year's results included a 1cent per share charge from four hurricanes in the state.
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