Earnings at Costco Climb 9.9%

Costco Wholesale Corp., the largest U.S. wholesale-club chain, said Tuesday that fiscal first-quarter earnings had risen 9.9% as it gained customers during the supermarket strike in Southern California.

Net income in the three months ended Nov. 23 climbed to $160.2 million, or 34 cents a share, from $145.7 million, or 31 cents, a year earlier.

Revenue, including membership fees, rose 14% to $10.5 billion from $9.2 billion, the Issaquah, Wash.-based company said.

Shoppers turned to Costco for groceries during the nine-week strike and lockout at Albertsons Inc., Safeway Inc. and Kroger Co. in Southern and Central California, where Costco has more than 50 stores. That helped boost same-store sales 11%, more than twice last year’s average quarterly increase. Rising workers’ compensation and health-care costs hampered higher profit gains.

Second-quarter profit will be 44 cents to 46 cents a share, company executives said. Analysts surveyed by Thomson First Call expect Costco to earn 44 cents. For the first quarter, the retailer had been expected to earn 31 cents.

Costco said full-year profit would be $1.68 to $1.74 a share, more than the $1.67 in Thomson’s survey.

Shares of Costco fell 14 cents to $36 on Nasdaq. They have gained 28% this year.

Costco plans to increase the amount employees contribute for health insurance and has said it is looking for other ways to reduce expenses. Most of the health-care changes take effect at the beginning of the year, it said.

“We heard a much clearer picture of how these costs that had been out of control are going to become under control,” said Martin Bukoll, an analyst at Northern Trust Corp., whose $345.7 billion in assets include Costco shares.

Costco may have gained as much as $100 million in sales because of the grocery strike, Chief Financial Officer Richard Galanti said. That added less than 1 cent a share, he said.

Supermarket employees represented by the United Food and Commercial Workers have been on strike or locked out at about 859 stores owned by Kroger, Safeway and Albertsons since Oct. 11. Negotiations to end the strike broke off Monday with no new talks scheduled.

Costco, which sells food and general merchandise in bulk, has attracted shoppers with low prices.

The warehouse chain may benefit even after the strike because shoppers will have one-year memberships, said Burt Flickinger, managing director of Strategic Resource Group.

“When people were forced to shop at Costco, they saw dramatic discounts,” he said.