Holiday Pressure Puts Damper on Costco Q2 Results

Costco storefront and logoIssaquah, WA—Costco Wholesale Corp. today reported that its second quarter profit fell 15% clipped by narrower gross margins in its fresh-food and some “non-foods” merchandise.

For the quarter ended Feb. 16, the warehouse club retailer posted a profit of $463 million, or $1.05 a share, compared with a profit of $547 million, or $1.24 a share, a year ago. That missed analysts’ average estimate for $1.17 a share.

Net sales rose 6% to $25.76 billion, missing analysts’ estimate for $26.65 billion in sales.

Comparable store sales were up 3% (up 5% excluding fuel). Membership fees rose 4.2% to $550 million.

Margin Pressure

According to Richard Galanti, chief financial officer, “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 certain non-foods merchandise categories, particularly during the four-week holiday selling season; weaker gross margins in our fresh foods business; and lower reported international profits, resulting from the significant weakening of foreign exchange rates. The first four-week period of the quarter represented the majority of earnings underperformance in the quarter.”

Costco has been reporting steady sales growth since 2009 thanks to a continued increased in its membership base, which saw 4.3 million new members signing up in 2013, according to research firm Trefis.

“Despite the miss, we believe Costco continues to fare better than most,” Janney Capital Markets analyst David Strasser said. “We would look to buy on weakness, as the core model remains intact, and the worst of the margin pressure was holiday-related.”

 

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Jeff Prine

Jeff Prine, Editor at Large, Accessories Magazine
Jeff returns as a regular contributor to Accessories magazine. Initially Jeff worked as senior editor at Accessories more than 20 years ago and his love of the industry has followed him until present. Since his tenure here, Jeff has continued to report jewelry, watch and other luxury goods trends as executive editor at Modern Jeweler magazine, fashion director at Lustre, and as contributor on products and trends for consumer and trade publications and websites. In addition to his editorial experience, Jeff also served as an adjunct instructor for accessories merchandising at Fashion Institute of Technology. jeffp@busjour.com