By Angela Chen
Costco Wholesale Corp. on Thursday reported a
better-than-expected 29% rise in earnings in the February quarter,
boosted by a tax benefit and lower fuel prices.
Shares of Costco, up 26% over the past year, rose 2.3% to
$150.56 in premarket trading as the wholesale giant's
second-quarter profit soundly beat analysts' expectations.
Costco, the second-largest retailer in the U.S. behind Wal-Mart
Stores Inc., has been a standout of late in the sector and is one
of the largest fuel retailers in the U.S.
The recent sharp decline in fuel costs was thought to help
Costco's results because the prices that the retailer pays for gas
were seen falling faster than the prices the retailer was charging
consumers at the pump. Analysts, however, have said this is likely
a short-term phenomenon until market resets itself.
Meanwhile, cheaper gas prices at the pump also leave consumers
with more disposable income to spend at its stores.
Earlier this week, the company said Citigroup Inc. and Visa Inc.
won the sought-after contract for its credit-card business,
replacing American Express Co., in a move that will significantly
expand the kind of plastic that is accepted at the warehouse giant.
Starting April 1, 2016, Visa will be the only brand accepted at
Costco. In addition, Costco will partner with Citi to issue a new
co-branded card to replace an existing Amex-Costco card.
The company, which started in 1983 in Seattle, now has 671
locations around the world and a customer base that is loyal and
affluent: Costco customer households in the U.S. had an average
income of $91,862 in January, compared with an average U.S.
household income of $68,664, the firm said. More than 90% of its
customers renewed last year.
Costco said sales excluding newly opened and closed stores rose
2% in its second quarter. In the U.S., that metric increased
4%.
In all, the company's quarterly profit rose to $598 million, or
$1.35 a share, from $463 million, or $1.05 a share, a year ago.
Costco said earnings were help by a tax benefit of $57 million,
or 13 cents a share, related to the company's special cash dividend
of $5 in February and hurt by costs of $14 million, or 3 cents a
share, because of a continuing tax matter.
Revenue rose 4.4% to $27.45 billion. Costco's revenue from
membership fees increased 5.8% to $582 million. Merchandise costs
gained 3.7% to $23.9 billion.
Analysts had expected a profit of $1.18 a share and revenue of
$27.65 billion, according to Thomson Reuters.
"Costco delivered one of its strongest quarters in recent
memory," Sterne Agee analyst Charles Grom said, adding that the
company's per-share earnings beat analyst expectation by the
largest amount in at least 13 years.
For the four weeks ended March 1, Costco reported sales of $8.18
billion, up 4% from a year ago. Sales excluding newly opened and
closed stores rose 1% world-wide in February and 2% in the U.S.
Mr. Grom said the company's February sales growth--which was 8%
world-wide excluding gas price deflation and foreign exchange--also
surpassed his expectations.
Write to Angela Chen at angela.chen@wsj.com
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