- Comparable sales for December were up 9%, versus the year ago period or up 6% after adjusting for the extra day in December over the year ago period.
- Comparable sales for January were up 2%, over the year ago period or up 5% after adjusting for the number of days over the year ago period.
- Comparable sales for February were up 4%, versus the year ago period, the result of a combination of an average transaction increase of 3.5% over the year ago period, which included a 20 basis point improvement due to foreign exchange.
- For February, average frequency increased a little under 1% and cannibalization was at 160 basis points, versus the year ago period. Average transactions for February rose by 3.5% with gasoline inflation of 10 bass points, over the year ago period.
- Canadian tobacco comparable sales at the end of January were negative, versus the year ago period. During February, Canadian tobacco comparable sales were down nearly 50%, over the year ago period.
- Comparable sales for the ancillary business were up 10%, versus the year ago period.
- The strongest area of hardlines sales continues to be consumer electronics. Comparable hardlines sales were in the mid teens instead of high teens in February, versus the year ago period. The strongest area in terms of fresh foods was produce.
Gross margin at 10.49% was lower by 28 basis points, over 10.77% in the year ago period.
Gross margin as a percentage of net sales declined 28 basis points over the prior year period. Excluding the unusual items, gross margin decreased 17 basis points over the prior year period, primarily due to lower gross margins in hardlines and softlines categories and increased penetration of the executive membership 2% reward program. Gross margin in the retail gas business was up slightly, over the year ago period. The pharmacy gross margin was up a little over 50 basis points, over the prior year period.
- Operating income was $361.328 million, versus $431.316 million in the year ago period. Excluding the non-recurring charge items, operating income would have been $446.8 million or up by 3.5%, over the prior year period.
- Income before income taxes was $394.234 million, versus $463.618 million in the prior year period.
- Interest and other income was $36.526 million, versus $35.225 million in the year ago period.
- Merchandise costs were $13.251 billion, versus $12.303 billion in the year ago period.
- Selling, general and administrative expenses (SG&A) were $1.487 billion or 10.05% of sales, up 49 basis points versus $1.317 billion or 9.56% of sales in the prior year period. SG&A were impacted by 31 basis points due to the quarterly stock options related charge.
- Pre-opening expenses were $7.486 million, versus $4.614 million in the year ago period.
- Net provision for impaired assets and closing cost was $3.459 million, versus $1.428 million in the prior year period.
- Provision for income taxes was $144.756 million, versus $167.415 million in the year ago period.
- Interest expense was $3.62 million, versus $2.923 million in the prior year period.
- Quarterly tax rate was 36.72%, versus 36.11% in the prior year period.
Costco currently operates 506 warehouses, including 373 in the United States and Puerto Rico, 70 in Canada, 19 in the United Kingdom, five in Korea, four in Taiwan, five in Japan, and 30 in Mexico. The company also operates Costco Online, an electronic commerce web site, at www.costco.com and at www.costco.ca in Canada.
- The company opened 4 new locations during the quarter, 3 new in the U.S. and 1 new in the U.K.
- In the ancillary business, 3 pharmacies were added, 4 food courts, 4 mini labs, 4 optical labs, 10 hearing aid centers, and 7 gas stations were added during the quarter.
- Square footage at the end of the quarter was 66.6 million.
Year-to-Date Financial Performance
Net income was $486.364 million, versus $512.021 million in the year ago period.
Earnings per share were $1.05, versus $1.06 in the year ago period. Excluding the three non-recurring items incurred in the second quarter, net income for the first half would have been $539.5 million or $1.16 per share, up 9% over the prior year period.
Total revenue for the first half was $29.263 billion, up 8.3% versus $26.992 billion in the year ago period.
This increase was primarily due to: 5% comparable warehouse sales growth (5.2% excluding gasoline and 4% excluding effects from stronger foreign currencies); and 3.6% sales growth from the opening of the 31 net new warehouses, offset by the change in estimated sales returns.
- Net sales were $28.657 billion, up 8% versus $26.46 billion in the year ago period. Excluding the sales return reserve adjustment recorded in the second quarter, net sales for the first half of 2007 would have been $28.88 billion, or up 9% over the prior year period.
- For the 27 weeks ended March 4, 2007, which includes the first two weeks of the third quarter, the company reported net sales of $32.4 billion, up 9% from $29.65 billion in the year ago period. These sales results exclude the adjustment to sales returns reserve.
- First half membership fees were $606.623 million, versus $532.32 million in the year ago period.
- Sales from Costco Online were up 43%, versus the prior year period.
- Gasoline sales contributed to the total sales growth by approximately 27 basis points for the first half. This increase was due entirely due to the increase in gallons sold as the average price per gallon was less as compared to the year ago period.
- Comparable sales for U.S. rose 4% over the year ago period.
- Comparable international sales rose 8% over the year ago period.
- Most of the comparable sales growth was derived from increased amounts spent by members visiting warehouses. Increases in frequency of shopping contributed slightly. Comparable sales growth was slightly offset by cannibalization.
- Year-to-date, the company opened 16 net new locations.
Gross margin was $3 billion, or 10.53% of net sales, versus $2.8 billion, or 10.68% of net sales, in the prior year period.
Excluding the unusual items affecting net sales and gross margin in the first half of fiscal 2007, adjusted gross margin as a percentage of adjusted net sales was 10.58%, or a decrease of 10 basis points, versus the year ago period. Overall gross margin in merchandise departments decreased by 3 basis points.
- Operating income was $714.468 million, versus $756.811 million in the year ago period.
- Interest and other income was $63.637 million, versus $60.765 million in the year ago period.
- Income before income taxes was $772.345 million, versus $810.929 million in the year ago period.
Selling, general and administrative expenses were $2.87 billion or 10.02% of net sales, versus $2.581 billion or 9.76% of net sales in the year ago period.
Excluding the unusual items affecting net sales and SG&A expenses in the second quarter, adjusted SG&A as a percentage of adjusted net sales was 9.78% for the first half, or an increase of 2 basis points, over the prior year period. Stock-based compensation expense increased 5 basis points in the first half, versus the year ago period. These increases were offset by net improvements in warehouse and central operating costs by approximately 2 basis points, versus the year ago period.
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