Costco profit up a bit, to cut prices to win sales
NEW YORK (Reuters) - Costco Wholesale Corp's (COST.O) quarterly profit rose slightly as strong results from its gasoline stations helped to offset weak consumer demand for all but the most essential household items.
The warehouse club operator on Thursday also said Wall Street estimates for earnings in its current second fiscal quarter, which includes the winter holiday shopping season, are on the high side of expected results and it intends to be "aggressive" cutting pricing to win sales.
"We haven't seen sales improve. The trend in the quarter was lower, not higher," said Chief Financial Officer Richard Galanti on a call with analysts, of recent results.
Shares were down 30 cents or 0.6 percent at $53.39 in afternoon Nasdaq trading.
Warehouse clubs like Costco had been seen as a relative safe heaven amid a beaten-down U.S. retail sector as shoppers seek out their discounted prices on food and toiletries. But Costco's results showed that its business is not immune from a year-long U.S. recession that has crimped spending among even higher-income shoppers.
Analysts also said the boost Costco received from its gasoline business in its latest quarter was expected to be temporary.
"It's unlikely that they will see this sort of positive performance in future quarters," said Neil Currie, a retail analyst with UBS.
Net income rose to $262.5 million, or 60 cents per share, for the fiscal first quarter ended November 23, from $262 million, or 59 cents per share, a year earlier.
Excluding a charge for accounting adjustments on insurance contracts and an impairment of corporate investments, earnings were 65 cents per share, compared with analysts' view of 62 cents, according to Reuters Estimates.
Quarterly sales rose almost 4 percent to $16.04 billion, excluding membership fees, which increased 6 percent to $358.7 million. Sales at its clubs open at least a year, a key retail gauge known as same-store sales, increased 1 percent.
It said demand for groceries was strong, but demand waned for most other merchandise.
"Clearly, food is driving our business," Galanti said.
CUTTING WALL STREET EXPECTATIONS FOR THE CURRENT QUARTER
Costco is the largest U.S. warehouse club operator, competing with Wal-Mart Stores Inc's (WMT.N) Sam's Club and BJ's Wholesale Club Inc (BJ.N).
It has won customers by offering unexpected items, like Burberry handbags, alongside typical warehouse club goods, such as bulk-sized packages of napkins and crates of fresh fruit. As a U.S. recession has squeezed budgets, customers have come to its clubs for low prices on food. Continued...
