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Costco Wholesale Q2 Profit Drops 15% Amid Weak Margins, Revenue Up


Membership warehouses operator Costco Wholesale Corp. (COST) Thursday said profit for the second quarter declined from the prior year, amid weaker margins for some businesses as well as adverse currency impact. Additionally, last year's results included a tax benefit.

Net income attributable to the company declined to $463 million or $1.05 per share from $547 million or $1.24 per share in the same quarter last year. The previous year's results benefited from a $0.14 per share tax benefit in connection with the portion of the special cash dividend paid by the company in December 2012 to the 401(k) plan participants.

On average, 26 Analysts polled by Thomson Reuters expected the company to report earnings of $1.17 per share for the quarter. Analysts' estimates typically exclude special items.

Total revenue for the quarter rose to $26.306 billion from $24.871 billion in the year ago quarter. Analysts had a consensus revenue estimate of $26.65 billion for the quarter.

Net sales for the quarter grew to $25.76 billion from $24.34 billion last year. Membership fees advanced to $550 million from $528 million in the prior year.

Richard Galanti, CFO, said, ''Despite satisfactory sales results during the second fiscal quarter, several other factors led to lower earnings.''

These factors included weaker sales and gross margin results in some non-foods merchandise categories, particularly during the four-week holiday selling season and weaker gross margins in fresh foods business.

Additionally, lower reported international profits, due to weakening of foreign exchange rates also impacted earnings. The first four-week period represented the majority of earnings underperformance in the second quarter.

For the four-week reporting month of February ended March 2, the company reported net sales of $7.90 billion, up 4 percent from $7.58 billion in the similar four-week period in 2013. Comparable sales rose 2 percent, comprising a 3 percent growth in the U.S. and a 1 percent drop in the International business.

Comparable sales, excluding the negative impacts from gasoline price deflation and foreign exchange, increased 4 percent.

Comparable sales for the twelve-week period rose 3 percent and improved 5 percent when negative impacts from gasoline price deflation and foreign exchange are excluded. U.S. reported a growth of 4 percent at actual rates and comparable sales growth was flat in the international business.

The stock slid 0.2 percent on Wednesday to close at $116.47.

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