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Costco's Net Income Leaps 20%

October 07, 2005|From Bloomberg News

Costco Wholesale Corp. said Thursday that fiscal fourth-quarter profit rose 20%, helped by electronics sales and lower taxes. The shares had their biggest gain in more than 2 1/2 years after the company said it would buy back as much as $1 billion of stock.

Net income beat analysts' estimates, rising to $354.7 million, or 73 cents a share, from $296.8 million, or 62 cents, a year earlier. Sales rose 10% to $16.4 billion, the Issaquah, Wash.-based company said.

Sales at stores open at least a year, a key measure of retail health, climbed 7% as Costco used coupons to lure shoppers and emphasized upscale products such as $2,500 plasma televisions to fend off competition from Wal-Mart Stores Inc.'s Sam's Club. Costco's gross margin narrowed after it offered discounts on gasoline as wholesale fuel costs soared.

"A lot of the margin was from gas prices," said Peter Goldman, a money manager with Chicago Asset Management. "Costco tries to stay price-competitive with Sam's, and they don't have the cost structure to do it and stay in margin."

The retailer was expected to earn 64 cents a share, according to the average estimate of analysts surveyed by Thomson Financial. Shares of Costco rose $2.01, or 4.7%, to $44.92. They have risen 4.6% in the last year.

Costco will open as many as 30 stores this fiscal year in cities including Atlanta and Chicago, Chief Financial Officer Richard Galanti said. Costco opened 16 stores in the fiscal year ended Aug. 28.

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