Costco Posts 3% Drop in Profit

Costco Wholesale Corp., the nation’s largest wholesale-club operator, said Thursday that its fiscal second-quarter profit slipped 3%, but the results still beat Wall Street expectations, nudging its shares to their highest level in five years.

Costco shares rose 61 cents to $52.80, after rising earlier in the day to $53.30, their highest level in the last five years.

For the three months ended Feb. 12, Issaquah, Wash.-based Costco said net income declined to $296.2 million, or 62 cents a share, from $305.5 million, or 62 cents, a year earlier. Last year’s results included a one-time income tax gain of $52.1 million.

Total revenue, including sales and membership fees, rose 11% to $14.05 billion from $12.66 billion in the same period last year. Same-store sales, or sales at stores open at least one year, rose 7% companywide during the quarter.

Analysts surveyed by Thomson Financial were expecting earnings of 60 cents a share on revenue of $13.79 billion.

Costco Chief Financial Officer Richard Galanti said the company was “comfortable” with Thomson Financial estimates for the fiscal third and fourth quarters.

Galanti also said the company, which operates 471 warehouse stores worldwide, was on track to open 18 to 20 stores, including relocating two or three existing stores, by the time the company’s fiscal year ended Sept. 3.

In fiscal 2007, he said, the company is expecting to open at least 30 net new stores.

The expansion is expected to add to the company’s capital expenditures. Galanti said the company expected capital costs of $1.2 billion to $1.4 billion for fiscal 2006, up from $995 million in fiscal 2005.

For the six months ended Feb. 12, Costco reported earnings of $512 million, or $1.06 a share, up from $498.61 million, or $1.02, in the comparable six-month period a year earlier. Total revenue was $26.98 billion, an increase from $24.24 billion a year earlier.