SOURCE: Costco

March 08, 2007 03:01 ET

Costco Wholesale Corporation Reports Second Quarter and Year-to-Date Operating Results for Fiscal 2007, Including Certain One-Time Items, and February Sales Results

ISSAQUAH, WA -- (MARKET WIRE) -- March 8, 2007 --Costco Wholesale Corporation (NASDAQ: COST) announced today its operating results for the second quarter (12 weeks) and first half (24 weeks) of fiscal 2007, both ended February 18, 2007, and its February sales results.

Net sales for the second quarter of fiscal 2007 increased to $14.80 billion from $13.79 billion during the second quarter of fiscal 2006. In connection with recent changes to our consumer electronics returns policy, we undertook a more detailed analysis of our returns than we had performed historically. Although the operational data is still preliminary and being refined, the information indicated a longer timeframe over which returns are received and a lower realization rate on returned items than were previously estimated. Accordingly, as part of our quarterly analysis of our estimated reserve for sales returns, we increased by $224.4 million the sales reserve balance and took a charge to income for the quarter amounting to approximately $48.1 million ($30.4 million after tax). Excluding the sales reserve increase, net sales for the second quarter were $15.03 billion, representing a 9% increase over the prior year.

Net income for the second quarter of fiscal 2007 was $249.5 million, or $.54 per diluted share, compared to $296.2 million, or $.62 per diluted share, during the second quarter of fiscal 2006. Included in this year's second quarter results are three non-recurring items: (i) the $48.1 million pre-tax charge reflecting the reduced gross margin on the revised sales return reserve (discussed above); (ii) a pre-tax charge of $46.4 million associated with reducing adverse income tax consequences arising from the review of stock options by a special committee of the Board of Directors (this is $23.6 million less than the estimated expected charge announced last quarter); and (iii) a $10.1 million pre-tax benefit primarily to merchandise costs for an excise tax refund on prior merchandise sales of phone cards. Excluding these one-time items, second quarter net income would have been $302.9 million, or $.66 per diluted share.

Net sales for the first half of fiscal 2007 increased 8% to $28.66 billion from $26.46 billion during the first half of fiscal 2006. Excluding the sales return reserve adjustment recorded in the second quarter, net sales for the first half of fiscal 2007 would have been $28.88 billion, or a 9% increase over the prior year.

Net income for the first half of fiscal 2007 was $486.4 million, or $1.05 per diluted share, compared to net income for the first half of fiscal 2006 of $512.0 million, or $1.06 per diluted share. Excluding the three non-recurring items, as previously outlined, net income for the first half of fiscal 2007 would have been $539.5 million or $1.16 per diluted share, a 9% increase in earnings per diluted share over the prior year.

Comparable sales for the fiscal second quarter (12 weeks) and fiscal first half (24 weeks) of fiscal 2007, both ended February 18, 2007, were as follows:

                                   12 Weeks   24 Weeks
                                   ---------  ---------
              US                       5%         4%
              International            4%         8%

              Total Company            5%         5%
                                   =========  =========
The Company today also reported net sales of $4.60 billion for the four weeks ended March 4, 2007, an increase of 9% from $4.22 billion in the same four-week period of the prior fiscal year. For the six-month retail reporting period of September through February, the twenty-seven weeks ended March 4, 2007, which includes the first two weeks of the Company's fiscal third quarter, the Company reported net sales of $32.40 billion, an increase of 9% from $29.65 billion during the comparable period of the prior fiscal year. These sales results exclude the adjustment to our sales returns reserve described above.

Comparable sales for the 4-week retail-reporting month of February and the 27-week retail-reporting period of September through February are as follows:

                                    4 Weeks   27 Weeks
                                   ---------  ---------
              US                       4%         4%
              International            5%         8%

              Total Company            4%         5%
                                   =========  =========
Costco currently operates 506 warehouses, including 373 in the United States and Puerto Rico, 70 in Canada, 19 in the United Kingdom, five in Korea, four in Taiwan, five in Japan and 30 in Mexico. The Company also operates Costco Online, an electronic commerce web site, at www.costco.com and at www.costco.ca in Canada. The Company plans to open an additional thirteen to fourteen new warehouses, including the relocation of one warehouse to a larger and better-located facility, prior to the end of its 52-week 2007 fiscal year on September 2, 2007.

A conference call to discuss these second quarter results is scheduled for 8:00 a.m. (PT) today, March 8, 2007, and is available via a webcast on www.costco.com (click on Investor Relations and "Webcasts").

Certain statements contained in this document constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For these purposes, forward-looking statements are those that address activities, events, conditions or developments that the Company expects or anticipates may occur in the future. Such forward-looking statements involve risks and uncertainties that may cause actual events, results or performance to differ materially from those indicated by such statements. These risks and uncertainties include, but are not limited to, domestic and international economic conditions including exchange rates, the effects of competition and regulation, consumer and small business spending patterns and debt levels, conditions affecting the acquisition, development, ownership or use of real estate, actions of vendors, rising costs associated with employees (including health care and workers' compensation costs), rising costs associated with the acquisition of merchandise (including the direct and indirect effects of the rising cost of petroleum-based products and fuel and energy costs), geopolitical conditions, and other risks identified from time to time in the Company's public statements and reports filed with the Securities and Exchange Commission.

                      COSTCO  WHOLESALE  CORPORATION

              CONDENSED  CONSOLIDATED  STATEMENTS  OF  INCOME
            (dollars  in  thousands,  except  per  share  data)
                                (unaudited)



                               12 Weeks Ended          24 Weeks Ended
                           ----------------------- -----------------------
                             February   February    February    February
                             18, 2007   12, 2006    18, 2007    12, 2006
                           ----------- ----------- ----------- -----------

REVENUE
   Net sales               $14,804,696 $13,789,246 $28,657,017 $26,460,038
   Membership fees             307,320     269,766     606,623     532,320
                           ----------- ----------- ----------- -----------
      Total revenue         15,112,016  14,059,012  29,263,640  26,992,358
OPERATING EXPENSES
   Merchandise costs        13,251,752  12,303,850  25,640,710  23,634,021
   Selling, general and
    administrative           1,487,991   1,317,804   2,870,458   2,581,896
   Preopening expenses           7,486       4,614      30,213      16,991
   Provision for impaired
    assets and closing
    costs, net                   3,459       1,428       7,791       2,639
                           ----------- ----------- ----------- -----------
      Operating income         361,328     431,316     714,468     756,811
OTHER INCOME (EXPENSE)
   Interest expense             (3,620)     (2,923)     (5,760)     (6,647)
   Interest income and
    other                       36,526      35,225      63,637      60,765
                           ----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES     394,234     463,618     772,345     810,929
   Provision for income
    taxes                      144,756     167,415     285,981     298,908
                           ----------- ----------- ----------- -----------
NET INCOME                 $   249,478 $   296,203 $   486,364 $   512,021
                           =========== =========== =========== ===========

NET INCOME PER COMMON SHARE:
   Basic                   $      0.55 $      0.63 $      1.07 $      1.08
                           =========== =========== =========== ===========
   Diluted                 $      0.54 $      0.62 $      1.05 $      1.06
                           =========== =========== =========== ===========

Shares used in calculation (000's)
   Basic                       450,901     471,889     454,884     472,282
   Diluted                     461,575     482,127     465,149     484,294

Dividends per share        $      0.13 $     0.115 $      0.26 $      0.23

Contact Information

  • CONTACTS:
    Costco Wholesale Corporation

    Richard Galanti
    425/313-8203

    Bob Nelson
    425/313-8255

    Jeff Elliott
    425/313-8264