Costco Q1 buoyed by grocery strike

By Don Hogsett -- Home Textiles Today, 12/15/2003 12:00:00 AM

ISSAQUAH, WA —

Helped by a California grocery strike, which drove customers in its doors, as well as strong sales of big-ticket electronics, first quarter sales at Costco Wholesale Corp. jumped 14.4 percent, to $10.3 billion from $9 billion last year.

Membership fees and other revenues brought in another $211.7 million, up 12.6 percent from $188 million last year.

A crucial gauge, same-store sales, shot up 11 percent, the warehouse retailer reported.

In a conference call with analysts and investors, Richard Galanti, cfo, said the grocery strike in California provided a big lift to Costco sales during the quarter, boosting same-store sales as much as a full percentage point. Strong comps were also recorded in the Northeast, Midwest and international divisions. International results were also helped by favorable currency exchange rates.

In addition to stronger grocery sales, top-line growth was also fueled by brisk sales of consumer electronics, including big-screen televisions and digital cameras.

With costs climbing higher and margins thinning out, profits, while strong, couldn't keep up with sales growth, and rose at a somewhat slower pace of 9.9 percent, to $160.2 million from $145.7 million last year.

Operating profits grew at an even more sluggish pace, edging up by 3.1 percent, to $268.9 million from $260.9 million a year ago.

Acting as a drag on the bottom line, average gross margin — historically thin in the warehouse club channel, leaving scant room for erosion — thinned by 10 basis points, or one-tenth of a percentage point, to 10.6 percent from 10.7 percent the preceding year.

At the same time, costs edged upwards by 10 basis points, or a tenth of a percentage point, to 10.0 percent from 9.9 percent last year.

Lending strength to the bottom line, the retailer slashed its store pre-opening costs by 44.3 percent during the period, to $10.1 million from $18.1 million last year, generating a savings of $8.0 million.

Costco Wholesale Corp.