Economy Still Driving Growth at Costco

Warehouse club chain Costco Wholesale Corp. said it continues to benefit from the shaky economy, seeing increases in both sales and profits for its fourth quarter and fiscal year ended August 31. However, fresh food was the only one of its four merchandising departments hit by margin declines as the cost of food has continued to increase, the chain said.

While Costco said it saw overallits business growth continuing, it will proceed cautiously into the new fiscal year. "We, like you, read the news every day, and we are approaching fiscal '09 very conservatively," said c.f.o. Richard Galanti, during an investor conference call yesterday.

Costco also said it was "comfortable" with analysts' average estimate for its current fiscal first quarter, but it said full-year earnings could come in anywhere between $3 per share and $3.25 per share.

Sales for the 16-week fourth quarter increased 13 percent to $22.63 billion, up from $20.09 billion last year. Comparable warehouse sales during the period increased 9 percent over 2007.

Net sales for fiscal 2008, the 52 weeks ended August 31, were $70.98 billion, an increase of 13 percent from last year's $63.09 billion. Comparable warehouse sales increased 8 percent over the prior year. Excluding gasoline price inflation, U.S. comparable sales would have been up 6 percent for the quarter, and 4 percent for the fiscal year. Midwest and Southeast regions saw the strongest comps, said Galanti.

Net income for the quarter was $397.8 million, or 90 cents per share, compared to $372.4 million, or 83 cents last year. According to Costco, the fourth quarter results were negatively affected by a non-cash pre-tax LIFO charge of $32.3 million primarily resulting from price increases in various food and grocery items and gasoline in the company's U.S. merchandise inventories. The fourth quarter results also include a $15.9 million pre-tax charge recorded in connection with a litigation settlement.

Net income for fiscal 2008 was $1.28 billion, or $2.89 per share, compared to $1.08 billion, or $2.37 per diluted share, during fiscal year 2007. Excluding the fourth quarter LIFO charge and litigation settlement, outlined above, net income per share for fiscal 2008 would have been 7 cents higher.

For the five-week retail reporting month of September, Costco logged net sales of $6.67 billion, an increase of 10 percent from $6.05 billion last year.

Costco operates 544 warehouses, including 398 in the United States and Puerto Rico, 76 in Canada, 31 in Mexico, 20 in the United Kingdom, eight in Japan, six in Korea, and five in Taiwan. It plans to open an additional seven new warehouses prior to the end of calendar year 2008.
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