Costco Profits Up 6%

Costco Chief Financial Officer Richard Galanti said in a conference call with investors Thursday that while sales climbed 10.1% to $11.7 billion, gross margins shrank to 10.59% from 10.61% a year ago due largely to increases at the pump. Strong sales in electronics, home furnishings, hardware, jewelry and automotive products, however, helped offset those increases and pushed Costco's performance above its rival, Wal-Mart-owned Sam's Club for the 20th straight month.

Also helping fuel a 6% increase in profits was membership fees, which brought in nearly $250 million for the three months ending May 8, or 11% more than the same period a year ago. The fees make up about 2% of the company's total revenue. Galanti said renewal rates also remained strong with average renewals running 86%.

The company's comparable-store sales, which measure sales for stores open at least a year, rose 7% during the quarter with the strongest sales in the Southeast and Midwest, Galanti said.

The company opened 10 new stores this fiscal year and will open another 10 by the end of its fiscal year in August. Costco currently has 452 warehouse stores in the United States, Canada, Great Britain, South Korea, Japan and Taiwan. An additional 25 to 30 stores are expected to open next year, Galanti said. The company also is expanding its in-store services, adding pharmacies, optical stores, photo shops and gas stations, he said.

Costco's net income for the first three quarters of fiscal 2005 was $708.4 million, or $1.46 a share, an increase of 21% from a year ago. Earnings were $585.6 million, or $1.23 a share, in the first three quarters of fiscal 2004. Total revenue also increased to $36.2 billion, up from $33 billion a year ago during the first three quarters.

Shares of the company's stock rose 7 cents to close at $45.49 on the Nasdaq Stock Market following Thursday's third quarter statement.