Grocery Down, Fresh Up at Costco

ISSAQUAH, Wash -- Costco Wholesale Corp. may be experiencing a boost in sales and revenue, but of its food items, apparently only perishables are contributing to this growth, according to the warehouse club's operating results for the third quarter and thirty-six weeks ended May 8.

"Our overall [comparative sales] for the third quarter is 7 percent," Costco c.f.o. Richard Galante said during a conference call yesterday. "Hardlines and fresh are in line with this number; food and sundries, and soft lines are below that number; and our ancillaries -- with and without gas -- are higher."

Net sales for the third quarter of fiscal 2005 increased 10 percent to $11.75 billion from $10.67 billion in 2004. Net sales for the first thirty-six weeks of fiscal 2005 increased 10 percent to $35.50 billion from $32.31 billion. Comparable warehouse sales during the first thirty-six weeks of fiscal 2005 increased 7 percent over the prior year's level.

Net income for year to date icreased 21 percent to $708.4 million, or $1.45 per share, compared $585.6 million, or $1.23 per diluted share last year. Net income for the third quarter increased 6 percent to $209.8 million, or 43 cents per share, from $198.7 million, or 42 cents.

Membership fees for the third quarter were $249.8 million, accounting for 2.13 percent of sales. This number is up $25.3 million, or 11 percent over the same time period last year. "We've benefited from strong renewal rates and increased penetration of our $100 executive memberships," said Galanti.

Total paid members numbered 24.5 million by the end of Costco's third quarter, compared to 24.1 million members last year. Renewal rates average 86 percent.

Since the fiscal year began August 30, the Costco opened 15 new locations, including 10 in the United States, three in Canada, one in Japan and one in Taiwan; and plans to open approximately 20 more locations throughout 2006. "Our expansion is deliberately and definitely ramping up," said Galanti.
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