This summary is based on the first quarter fiscal 2009 earnings call conducted by Costco Wholesale Corporation (COST) on December 11, 2008.
Management:
EVP & CFO: Richard Galanti
Key Investors Issues
- EPS were 60 cents per share compared to 59 cents per share last year.
- Net income was $262.5 million compared to $262 million during the first quarter of fiscal 2008.
- Net sales increased to $16.04 billion from $15.47 billion during the first quarter of fiscal 2008.
First Quarter Highlights
EPS were 60 cents a share compared to 59 cents a share last year.
- Foreign exchange headwinds hit the company by an estimated 3 cents a share.
- The company got a pick-up of $2 million of LIFO income.
- Sales for were $16.04 billion, up 4% from last year’s $15.5 billion and 12-week comparable sales figure showed an increase of up 1%. Both total sales and comparable store sales were impacted by the strengthening dollar.
- The company opened a total of eight new locations. Of the eight new locations, six were in the US, one was in Canada and one in the UK.
- International comparable store sales were minus 7%.
- Membership fees in dollars were up 6% or $21 million and as percent of sales up five basis points.
- Gross margins year-over-year were up 32 basis points.
- SG&A percentages quarter-over-quarter were higher by 31 basis points.
- Operations were higher by 16 year-over-year.
- Pre-opening was lower, $8.6 million lower coming in at $12.8 million this year versus $21.5 million last year.
- Pre-tax income was up 2.3% from $405 million to $414 million this year.
- Cash and equivalents were $2.816 billion.
- Inventories were $5.933 billion.
- Other current was $1.351 billion for total current assets of exactly $10.100 billion.
- Net PP&E was $10.192 billion.
- Other assets were $721 for total assets of $21.013 billion. Short-term debt was $169 million, accounts payable was $5.847 billion, other current was $3.522 billion, and total current was $9.538 billion.
- Long-term debt was $2.196 billion, deferred and other was $327 million for total liabilities of $12.061 billion. Minority interest was $85 million, stockholders’ equity was $8.867 billion, again for a total of $21.013 billion.
- Debt to cap ratio came in at 21%, after buying back nearly $5 billion of stock in the last 3.5 years and back in early 2007 adding $2 billion of debt to balance sheet.
Accounts payable is 88%.
- Average inventory per warehouse last year at quarter end it was $11.687 million. This year quarter end it was down $256,000 per warehouse to $11.431 million.
- CapEx was $437 million than a year ago first quarter of $378 million.
- The company increased quarterly dividend from 14.5 cents a share to 16 cents a share or a 64 cents per share annualized dividend. On an annual basis that represents a cost to the company of about $285 million.
Key questions from the first quarter earnings call conducted by Costco Wholesale Corporation on December 11, 2008.
Deborah Weinswig (Citigroup):
How do you expect food disinflation to impact your business in 2009?
Richard Galanti: Inflation was a short-lived word at least right now. If I looked at our various LIFO pools, what we call food and sundries, in first quarter it was still up about 0.50% in pricing. In sundries it was up about 0.50%. In electronics and computers and what have you, it was down 2.5%. Gas which also includes sporting goods, office, automotive, was down all because of gas. And tobacco, beer and wine was essentially flat. In something as basis as ham and bacon and butter, are all down about 50 cents on $9 and $10 price points so down 4% or 5%. These are recent price decreases. Cheerios down 50 cents on a $5.50 item. Canned tomatoes down 80 cents on a $7.50 item. Forty cents down on juice, orange juice. A year ago New York steaks were $7.99, they are now $5.99, that is all because of a lower demand. But we are doing a heck of a job with that stuff. And on the non-food side, Kirkland Signature Diapers and Kirkland Signature Baby Formula are both down a couple of buck on $20 and $40 price points so 5% to 10%. So we are seeing some of this come down. Gas is way down.
Deborah Weinswig (Citigroup):
Can you talk about the trend year-over-year in terms of the instant manufacturer rebates which are vendor supported markdowns?
Richard Galanti: There are a lot of instant rebates, and what it is is the manufacturers who have a lot of inventory pushing it out and we are well known for taking large massive quantities of big-ticket items. The television example is a great one but whether it is a high end vacuum cleaner, or high end luggage or apparel, we are getting some great brand names out there in big quantities and that stuff is selling by the way. It is not selling like it was but we can push through that with great confidence and so I do not see that changing other then the fact that some of these manufacturers have not continued to build as if things were getting better next week so maybe there is availability next year, but going into Christmas and the pressure on the buyers here as you would expect, among other pressures like going back and saying, the price should be coming down now, is to find those items that we can either divert or buy indirectly direct or buy direct.
Deborah Weinswig (Citigroup):
Can you talk about anything different in terms of your business model now versus three to four years ago where you could expect continued SG&A performance as such on a weak comp?
