This is a summary of the second quarter earnings call as presented by Costco Wholesale Corporation (COST) on March 4, 2009
Management
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Executive Vice President & Chief Financial Officer: Richard A. Galanti
Key Investors Issues
- Earnings per share came in at 55 cents down 26% from 74 cents last year.
- Net sales declined one percent, to $16.49 billion.
- Operating income was down 21% from $504 million last year to $399 million.
Second Quarter Highlights
Earnings per share came in at 55 cents down 26% from last year same periods'' EPS of 74 cents.
- This compares to current first call consensus of 59 cents, which has come down over the past several weeks from the low-to-mid 70s to its current level .
- The firm experienced a negative swing in its year-over-year gas profits in the quarter by about 4 cents a share.
- The foreign earnings results when converted and reported in U.S. dollars negatively impacted earnings by about $27 million or about 4 cents a share pretax.
Sales trends during the quarter showed some improvement in January and February as compared to December.
- December with larger sales levels and increased penetration of bigger ticket non-foods items was the weakest of the three-four week periods.
- These weaker sales results were despite aggressive pricing done early in the fiscal quarter to drive sales, which estimated somewhere in the three to four cents a share range. - While inventories came out of the holidays quite clean, Costco incurred higher seasonal markdowns year-over-year in the period roughly an estimated three cents a share.
Total sales came in at minus 1% and the comp sales figure was reported at a minus 3%.
- Both total sales and comp sales were significantly impacted by both gasoline price deflation and by the strengthening of the U.S. dollar.
- On a comp sales basis the minus 1% comp sales decline, would have been plus 4% if you exclude gasoline deflation.
- Total company comps again reported at minus 3% for the quarter. If you exclude both the gas deflation and the FX changes the minus 3% reported would have been a plus five for the company overall.
Excluding gasoline deflation the 0% reported U.S. comp would be plus four.
- Excluding gas and the impact of the FX changes February''s total company reported comp of minus 3% would have been plus five.
- Since the end of the period on February 15 Costco has opened three new Costco warehouses in Lakewood, California and in Honolulu, Hawaii. And Las Vegas that being the seventh Costco business center.
- Costco now operates 553 locations around the world and that includes the 31 in Mexico.
Sales were $16.5 billion down just under minus 1% from last year''s sales of $16.6 billion.
- International comps in local currency were up 8% but reported a minus 11%, once converted into U.S. dollars.
- The average transaction decreased 7%, and it bounced around 6 to 8 in each of the three - The average frequency increase was almost plus 5% for the quarter. So, members are coming in more frequently, but buying a little less each visit.
Year-over-year the average sales price per gallon in each of the second quarters was down 41% year-over-year.
- The minus 3% reporting comps were a combination of an average transaction decrease of minus 8%, which includes of course the FX impact of a little over 4%, and the gasoline deflation impact of around 3%.
- In terms of sales by geography, not a lot has changed California.
- In the merchandise categories, food and sundries and health and beauty aids and fresh foods continue to be positive.
Within food and sundries tobacco continues to be a little bit negative.
- That may reverse itself with an upcoming increase in price simply related to the upcoming federal floor tax on tobacco in April.
- Other than tobacco all the other subcategories were up year-over-year with the dry groceries and canned goods being the strongest in the low double digits
- TV unit sales just in February were up over 50%, but dollars were up just barely over 0% in other words big price point changes downward in those products.
