Costco posts 10% jump in earnings

From the Associated Press

Costco, the nation's largest wholesale club operator, said Thursday that its fiscal first-quarter profit rose 10% amid strong demand for consumer electronics. The company expects to take a second-quarter charge as it fixes improperly priced employee stock options.

For the quarter that ended Nov. 26, net income totaled $236.9 million, or 51 cents a share, compared with $215.8 million, or 45 cents, a year earlier. Revenue climbed 9% to $14.15 billion.

Analysts surveyed by Thomson Financial were looking for earnings of 50 cents a share on sales of $14.06 billion.

Costco Wholesale Corp. also trimmed the top end of its earnings guidance for the fiscal year to $2.60 a share, from a previous top mark of $2.65. Analysts are estimating earnings of $2.59 a share for fiscal 2007.

Shares of Issaquah, Wash.-based Costco rose 97 cents to $54.11.

Sales at stores open at least a year, a key industry gauge called same-store sales, rose 4%, the company said.

Lower gasoline prices, a year after Hurricane Katrina pinched supplies, hurt sales, Chief Financial Officer Richard Galanti said.

But Costco also made more money on memberships, which increased by $5 in May, and continued to see strong sales in electronics, particularly flat-panel TVs, he said.

"Part of it is the continued increase in availability for us -- we're getting pretty much anything we want now from the suppliers," Galanti said. "The numbers are nuts in TVs."

Costco also said it expected to take a second-quarter charge of about $70 million, or $45 million after taxes, as it paid employees the difference of increased exercise prices on some stock options granted from 2000 to 2003.

The company had previously acknowledged "imprecisions" with certain grants. On Thursday, Costco said a company probe into option granting practices found that options for the 1,050 workers in question carried an artificially low exercise price, which could expose them to tax liabilities.

More than 100 public companies have been under government investigation or internal review for possible improper timing of stock option grants.

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