Costco Revises 4Q Earnings Projection

August 29, 2006  by in UnCategorized   

By Home Furnishings Business in on August 2006 Warehouse club retailer Costco Wholesale Corp. reported an 11 percent increase in August 2006 sales over last year to $4.55 billion, but lowered its earnings guidance slightly for the fourth quarter and fiscal year.

During its third-quarter earnings conference call on May 31, Costco said estimated earnings per share for the fourth quarter and fiscal year of $0.77 and $2.33, respectively, were “at the high end of company expectations.” Currently, earnings per share for the fourth quarter are expected to be $0.68 to $0.71; and for the fiscal year $2.23 to $2.26 per share. These estimates include a one-time income tax charge of approximately $0.03 per share.

For the first 52 weeks of its 53-week 2006 fiscal year ending Sept. 3, Costco reported net sales of $57.78 billion, an increase of 11 percent from $51.86 billion during the similar 52-week period of the prior fiscal year.

“The principal factor leading to our revised fourth quarter earnings outlook is lower-than-planned gross margins,” said Richard Galanti, chief financial officer of Costco in a release. “In addition, approximately $0.03 per share of the fourth-quarter revision relates to accruing a reserve for income taxes of up to $14.8 million related to a non-recurring foreign tax assessment for a structure that had been utilized by the company during fiscal years 2000-2005 and that was subsequently discontinued. We remain positive in our outlook for fiscal 2007 and beyond; and we would expect to open at least 35 new locations during the coming fiscal year.”

Costco currently operates 487 warehouses, including 358 in the United States and Puerto Rico, 68 in Canada, 18 in the United Kingdom, five in Korea, four in Taiwan, five in Japan and 29 in Mexico. The company also operates Costco Online, an electronic commerce Web site, at www.costco.com and at www.costco.ca in Canada. Costco plans to open an additional 20 to 21 new warehouses in the first four months of fiscal 2007, prior to the end of calendar year 2006.