Costco's 2Q Earnings Off 16%

Issaquah, WA, March 8, 2007--Costco Wholesale posted a 16% drop in second-quarter profit, hurt by rising costs and charges. The company posted net income of $249.5 million, or 54 cents a share, for the three months ended Feb. 18, down 16% from $296.2 million, or 62 cents, earned in the year-earlier second quarter.

The results included a $48.1 million charge related to reduced gross margin on the company's revised sales return reserve, a charge of $46.4 million associated with a stock-options review and a $10.1 million benefit related to an excise-tax refund.

Excluding these items, Costco earned 66 cents a share.

Costco's quarterly sales increased to $14.8 billion from $13.79 billion. Total revenue, which includes membership fees, reached $15.11 billion, up from $14.06 billion in the year-ago quarter.

Analysts, on average, expected it to earn 66 cents a share on revenue of $15.48 billion, according to Thomson Financial.

Last month, Costco revamped its return policy on consumer electronics to keep shoppers from returning merchandise indefinitely for full refunds. In general, Costco allows shoppers an unlimited time to return most purchases for full refunds, but it recently set a 90-day return period for consumer electronics.

Costco' shares fell fractionally to $55.70 in morning trading.

The shares have gained nearly 7% since the beginning of the calendar year, outperforming main rival BJ's Wholesale Club shares of which have gained about 2%.

Same-store sales, tracking sales at stores open at least a year, rose 5% chainwide during Costco's second quarter, reflecting increases of 5% in the U.S. and 4% internationally.

February's same-store sales rose 4%, shy of the 5.1% consensus estimate. Total sales for the four weeks ended March 4 climbed to $4.22 billion, up 9%.

Regarding its expansion plans, the company intends to open 13 or 14 new warehouses, including one to be relocated to a larger site, by the end of the current fiscal year ending Sept. 2.