Costco Profit, Sales Climb

ISSAQUAH, WA-Costco Wholesale Corp., having opened 16 new locations in 2005 and planning up to 30 new locations for 2006, earned 18% more for the fourth fiscal quarter of this year than it did last year, the company reported Thursday. Sales were up for the quarter and the year, with comparable store sales rising 7% for both the quarter and the year.

Along with the results of fiscal 2005, which ended Aug. 28, the company discussed expansion plans Thursday during its quarterly conference call with financial analysts. The plan calls for 28 to 30 net new locations in 2006, according to CFO Richard Galanti, who said the company has “ramped up” its expansion pace for 2006.

Costco’s net income for the 16-week fourth quarter ended Aug. 28 totaled $354.7 million, or 73 cents per diluted share, up from $296.8 million, or 62 cents per diluted share in the comparable quarter last year, representing an 18% increase in EPS. For the year, net income increased to slightly more than $1 billion from $882.4 million in the previous fiscal year.

On a per-share basis, the company earned $2.18 versus $1.85, also an increase of 18%. Sales increased 10% to $16.36 billion in the fourth quarter and also climbed 10% to $51.86 billion for the year.

Costco is “running on all cylinders right now,” Galanti commented during the conference call. The company’s 16 net new units for 2005 actually included 21 new stores, the Costco CFO said, but some of those were relocations of existing units so they did not boost the store count.

For the first fiscal quarter of 2006, now under way, the company plans to open a net of eight new units counting new stores and relocations. Although Costco had expected to open more stores in 2005, Galanti said the company is confident that it will reach its goal of 28 to 30 stores for the full fiscal year 2006, saying “We have much more in the pipeline” this year than the company did at this time last year.

Costco’s recent financial performance has earned it an unchanged “equal weight” rating in a report this week by Lehman Bros. analyst Robert Drbul, with equal weight meaning the stock is expected to perform approximately on a par with the overall industry. “We are impressed by the continued strength of Costco’s comparable store sales results and membership renewal trends, and are encouraged by the company’s efforts to improve its gross margins and expense leverage despite the highly competitive nature of the warehouse club industry,” Drbul’s report said.

Costco operates 461 warehouses, including 339 in the United States and Puerto Rico, 65 in Canada, 16 in the United Kingdom, five in Korea, four in Taiwan, five in Japan and 27 in Mexico. Its expansion plans for 2006 also include three new stores in Mexico, the company said Thursday.