Sales up, profits down for Costco

By Don Hogsett -- Home Textiles Today, 3/17/2003 12:00:00 AM

ISSAQUAH, WA —

Hit by a $26 million pre-tax charge to cover rising workers' compensation costs, most notably in California, second-quarter profits at Costco Wholesale Corp. slipped by 5.4 percent, to $182.1 million from $192.6 million last year, even as sales increased by more than 7 percent.

Taking the bite out of the bottom line, Costco said reserves for rising unemployment costs totaled $26 million on a pre-tax basis during the second fiscal quarter ended Feb. 16, or $16 million after taxes. More than a third of its U.S. workforce is in California, and claims there accounted for about two-thirds of Costco's workers' compensation.

Sales at the warehouse giant rose by 7.7 percent, to $9.9 billion from $9.2 billion last year. Same-store sales rose by 4.0 percent, with sales in U.S. stores up 3.0 percent and international sales rising by 5.0 percent.

Average gross margin held relatively steady during the second quarter, inching ahead by 10 basis points, to 10.9 percent from 10.8 percent a year ago. But offsetting modestly stronger margins, costs climbed higher by 60 basis points, rising to 9.7 percent of sales from 9.1 percent the preceding year.

Acting as a drag on the bottom line, interest expense jumped up by 29.1 percent, to $8.0 million from $6.2 million last year. But acting as an offset, interest income increased by 13.3 percent, to $9.0 million from $7.9 million.

Costco Wholesale Corp.