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Costco Reports Strong Quarterly Results, Stock Drops

costco
DAMIAN DOVARGANES

 

Costco Wholesale’s stock price has fallen 3 percent Wednesday morning despite the company posting a quarterly profit that was 16 percent…

Costco Wholesale’s stock price has fallen 3 percent Wednesday morning despite the company posting a quarterly profit that was 16 percent better than last year and higher than Wall Street analysts expected.

The Issaquah-based chain said its profit for the second quarter ended Feb. 13 was $348 million, or 79 cents a share. Analysts had expected 78 cents a share.

Sales were up 11 percent, to $20.9 billion for the quarter, which included Christmas. Membership fees rose 10 percent to $426 million.

Rising gasoline prices are hurting the profitability of its gas operations, CFO Richard Galanti said in a conference call with analysts. The chain also took a hit in the second quarter on legal fees and accounting adjustments for inventory. Tempered by benefits from foreign exchange rates, the total hit was about 2 cents a share, Galanti said.

The company’s shares fell 3.1 percent to $71.32 in midday trading. It is still near a 52-week high of $75.48 a share.

Costco opened two new locations in the second quarter, in Minneapolis and Vancouver, Wash. It plans to open 14 more new warehouses by the end of its fiscal year in August, bringing its total new stores for fiscal 2011 to 24, including 14 in the U.S., five in Asia and three in Canada.

Bad weather shaved sales by 1 to 1.5 percent in February, Galanti said. The weakest regions were the Northeast and Northwest.

Sales in Japan and South Korea are growing in the teens, and warehouses in Canada are up in the high single digits, he said. Costco does not disclose exact sales or percentage gains by country.

Margins on Costco’s fresh food products are down, because the company waits to see whether the rising costs of items it is buying are temporary, Galanti said.

“You tend to hold off and realize a lower margin for several weeks or a few months and then finally, bring it up… and get back to you regular margin,” he said. “We want to protect the prices to members that are buying these items.”

-Melissa Allison, Seattle Times

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