Costco tops expectations on higher sales

Costco Wholesale Corp. on Wednesday reported a fiscal second-quarter profit that topped Wall Street expectations as the company’s low prices continued to attract customers and drive sales.

The wholesale club operator, based in Issaquah, Wash., said its net income rose 13 percent as sales at stores open at least a year increased.

During the economic downturn many consumers have looked to stretch their dollars by shopping at wholesale clubs, where they can get a deal on bulk groceries and household staples. Costco has also developed a reputation as a go-to place for shoppers who like a “treasure hunt” for impulse purchases of unexpected items.

Costco said net income rose to $394 million, or 90 cents per share, for the three months ended Feb. 12, compared with $348 million, or 79 cents per share, a year ago.

Analysts on average had forecast a profit of 88 cents per share, according to Fact Set.

For the latest quarter, Costco said revenue at stores open at least a year climbed 8 percent, or 7 percent when excluding the impact of higher gas prices and foreign currencies.

The metric is a key gauge of a retailer’s health because it excludes results from stores recently opened or closed.

Even as big-box retailers and supermarkets struggle with rising fuel and commodity costs, Costco has made a strategic decision absorb rising costs to stock its shelves to take business from rivals such as BJ’s Wholesale Club and Sam’s Club.

The sacrifice on profit margins could be paying off.

On average, Costco said customers spent 2.4 percent more per visit during the quarter. The frequency of visits also rose to 5.2 percent.

“We’re always going to match or try to be lower than our competitors,” Chief Financial Officer Richard Galanti said.

Costco’s shares edged up 79 cents to close at $86.06 Wednesday. Its shares have been flirting with their 52-week high of $88.68 set in early December. The stock was low as $69.54 this past March.

Net sales for the quarter increased to $22.5 billion from $20.45 billion a year ago. Revenue from membership fees also rose to $459 million from $426 million.

In February, the company noted that revenue at stores open at least a year was up 8 percent, or 7 percent when excluding the impact of gas prices and foreign currencies.

So far this fiscal year, Costco has opened eight new stores, including four in the United States and four in Japan. The company plans to open 17 this year.

Costco is the largest membership warehouse club in the country. The company operates 600 warehouses, including 433 in the U.S. and Puerto Rico.

It also has 82 in Canada, 32 in Mexico, 22 in the United Kingdom, 13 in Japan, eight in Taiwan, seven in Korea and three in Australia.

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