COST 2009 Q3 Earnings - by BetterTrades

Prior to the market’s opening bell, one of the nation’s leading warehouse retailers, Costco Wholesale Corp. (COST), made it known that the company’s profits for the 3Q plummeted on weaker sales and litigation charges, which affected the company’s overall performance.

Although Costco has been one of the few resilient retailers during the global recession, company representatives affirmed that declines in consumer spending and falling retail prices molded the company’s quarter.

Richard Gallanti, Costco's CFO, stated the current predicament is "a little bit of a challenge profitability wise, but (the company is) still driving business and driving frequency and loyalty."

For the recent period, Costco booked net income of $209.6M, or $0.48 per share, compared to the previous year’s 3Q profits of $295.1M, or $0.67 per share, a decline in earnings of nearly 29%.

A substantial portion of the company’s decline in earnings came from a non-cash, pre-tax charge of $34M, related to a settlement of a class-action lawsuit over the company’s membership renewal policy.

During the quarter, Costco’s overall sales totaled $15.81B, down almost 5% from the previous year’s 3Q revenues of $16.61B. Meanwhile, the company’s same store sales figures were down 7% year-over-year, with the U.S. stores slipping 5% and international stores declining 12% from last year’s stats.

On average, analysts within the industry were looking for the membership warehouse operator to book quarterly earnings of $0.53 per share based on overall revenues for the period of $16.16B.

Other factors coming into play were the company’s increase in employee benefit costs, which was a direct result of an increase in health care usage. Adding to the lower earnings was the impact that the exchange rates had on the company. Profits declined as converting the dollar into local currencies, such as in Canada, Mexico, South Korea and the U.K., dampened Costco’s overall profits.

In Costco’s recent monthly sales report in April, the company witnessed net revenues for the month slide more than 6% over the prior year’s tally, from $5.54B to $5.18B. Additionally, same store sales dipped 8% in April, reflecting a poor Easter Holiday sales run.

Looking deeper into the company’s report, membership fees for Costco plunged 6.4% during the quarter, compared to an average growth rate of 2.1% over the past three years. Unlike other retailers, Costco has been able to maintain and reduce their inventories during this economic crunch and has announced that the company plans to close two of their Costco Home Furnishings stores to cut costs.

"Small businesses and families and individuals are feeling the pain. They are going to be extremely careful and watch every purchase and every dollar. Costco is an excellent retailer with a strong business model, but it's not immune," stated Madison Riley, a retail strategist with Kurt Salmon Associates.

At the conclusion of the May 28 trading session, shares of COST were down nearly 2%, giving up $0.86 to end the day at $47.97 per share. During the course of the year, Costco’s stock has traded within a wide range, as high as $74.89 per share and as low as $38.17 per share.

By BetterTrades