Costco Ramps Up Store Expansions

The 2005 figure will be up from 20 new stores in 2004, which did not include any relocations. The Costco CFO called the new store openings "a conscious effort on our part to ramp up our expansion." He pointed out that the 20 new stores opened in 2004 actually exceeded the company's expectations by several stores since, as recently as mid-year 2004, the 442-unit chain projected that it would finish with 17 or 18 new locations for the fiscal year-ended Aug. 29. "We have a large group of people out there in many communities looking for sites," Galanti said. "We think there is plenty of opportunity out there over the next eight to 10 years, and we should easily go from the 330 or so US locations to close to 600 in the next 10 years."

In response to securities analysts' questions, Galanti said Costco faces formidable competition in Canada since Sam's Club entered that market in October 2003 with four stores. Costco remodeled and expanded some of its stores before the arrival of Sam's, and the company will open more units in Canada, Galanti said, although he did not specify how many. "We feel good about our fight and will continue to make it as inhospitable as possible for competitors, not only Sam's but everyone else there," Galanti said. "We think we have some competitive advantages up there, but they [Sam's] are not going away, and we respect them."

Costco reported that net income for the 16-week fourth quarter increased 24% to $296.8 million, or 62 cents per diluted share, up from $239.4 million, or 51 cents per diluted share, during the 16-week fourth quarter of fiscal 2003. Net income for fiscal 2004 increased 22% to $882.4 million, or $1.85 per diluted share, an increase from $721 million, or $1.53 per diluted share, during fiscal year 2003. The earnings increases came on sales of more than $14.8 billion in the fourth quarter, up from $13.4 billion during the previous year's fourth quarter. For the year, net sales totaled nearly $47.2 billion, an increase from nearly $41.7 billion in fiscal 2003.

Among other items, the company reported that its Internet sales increased by 64% to $388 million in 2004, and projections are for online sales of more than $500 million in 2005. Costco's 442 warehouses include 327 in the United States and Puerto Rico, 63 in Canada, 15 in the United Kingdom, five in Korea, three in Taiwan, five in Japan and 24 in Mexico.