This summary is based on the second quarter fiscal 2008 earnings call conducted by Costco Wholesale Corp. (COST: chart) on March 5, 2008.

Management:

- Chief Financial Officer, Executive Vice President, Director: Richard A. Galanti

Key Investors Issues

- Sales rose 12% to $17 billion from $14.8 billion in the prior year.
- Net income was $327.9 million, or 74 cents per share, rising 31.4%.
- Capital expenditure amounted to $339 million, bringing the year-to-date to $775 million, slightly lower than the original budget.

Half Year Highlights:

- Net sales were up 12% to $32.09 billion, from $28.66 billion in 2006.
- Net income was $589.8 million, or $1.33 per share, up 21.3% from $486.4 million, or $1.05 per share in the prior year.
- The firm had total member households of 28.3 million, up from 27.8 million in the prior period.

Second Quarter Highlights

Net sales increased 12% to $16.62 billion, from $14.80 billion in 2006 as prior year sales results were negatively impacted by an increase in the sales returns reserve of $224.4 million.

- The U.S. comparable sales figure includes, among other things, the effect of recent gasoline price inflation, with the average sales price per gallon of gasoline up 29%.
- In addition, significantly stronger foreign exchange rates, primarily in Canada, positively impacted international comparable sales results, rising 6%.
- Net income was $327.9 million, or 74 cents per share, rising 31.4% from $249.5 million, or 54 cents per share due to revenue growth and the effect on non recurring items in the prior year.
- Membership fees were $342.9 million, or 2.06% of revenue up 11% in dollars or about $36 million.

Renewal rates are strong, and the firm is still getting increased penetration from the executive membership conversions and sign-ups.

- At period end the firm had 19.3 million Gold Star members; 5.5 million primary business members; and 3.4 million business add-ons bringing the total member households to 28.3 million, up from 27.8 million in the prior period.
- Paid executive members were 6.9 million as the firm added about 18,000 a week in the last 12 weeks of the quarter and renewal rates fluctuate between 86 and 87.

Gross margin, was 10.73%, up 24 basis points, as margins were impacted by a $10 million refund and the sales returns reserve balance.

- During the quarter there was a legal settlement of $5 million relating to a member downgraded from executive member back to a Gold Star member, or just decided not to renew.
- The gross margin outlook going forward remains positive in terms of the initiatives that have been undertaken.
- The impact from increasing executive member business should still be again a small hit to reported gross margin as it relates to the fact that the firm increases the sales penetration, that reward reduces sales.

SG&A, at $1.62 billion were lower by 33 basis points coming in at a 9.72% versus 10.05%.

- Pre opening expenses increased to $9.7 million from $7.5 million in the prior year, due to the seven openings.
- Interest income was up slightly to $40.6 million, up $4 million from $36.5 million a year ago due to higher interest income, even though rates are coming down a little, and an increase in earnings from the 50% interest in Mexico operations.

Cash and cash equivalents exceeded $2 billion, with $1.2 billion invested in enhanced cash money markets, or enhanced cash funds in line with investment policies.

- The firm requested and was granted redemption of almost $800 million, which was then reinvested in government related funds at a 20 to 40 basis point lower yield.
- In terms of capital expenditure, the firm spent $339 million, bringing the year-to-date to $775 million, slightly lower than the original budget.
- The firm still has existing repurchase authorization of about $1.5 billion.

Operational Activities:

- The firm opened a total of seven new units during the period, four in Canada, one in the U.S., and one each in Korea and Japan, bringing the year-to-date openings to 13 net new units, as well as four relocations.
- At the end of the period, the firm operated 531 locations around the world and since February 17th, has opened three additional units, in Colorado Springs, Colorado; Woodland, California; and Puerto Vallarta, Mexico.
- The 7% reported comparable figure was a combination of the product of an average transaction increase and average frequency increase.
- Average transaction increase was about 5.5%, with the average frequency increase being a little better than 1.5% up for the quarter.
- Cannibalization is still a negative impact because the firm continue to in-fill markets and the firm was also impacted in Eastern Canada, the Northeast and Midwest by weather.

Sales Comparisons: