- Merchandise costs were $25.64 billion, versus $23.634 billion in the year ago period.
- Pre-opening expenses were $30.213 million, versus $16.991 million in the year ago period.
- Net provision for impaired assets and closing cost was $7.791 million, versus $2.639 million in the year ago period.
- Provision for income taxes was $285.981 million, versus $298.908 million in the year ago period.
- Interest expense was $5.76 million, versus $6.647 million in the year ago period.
Total current assets at the end of the first half were $8.26 billion. At the end of the first half, cash and cash equivalents were $2.233 billion, and other current assets were 1.112 billion. At the end of the first half, inventories were $4.931 billion, versus $9.656 million in the prior year period.
Total assets at the end of the first half were $17.925 billion. Net property, plant and equipment were $8.917 billion and other assets were $732 million.
Total current liabilities at the end of the first half were $8.665 billion. At the end of the first half, short-term debt was $461 million including the current portion of $300 million of long-term debt. Accounts payable were $4.962 billion and other current liabilities were $3.242 billion.
Long-term debt was $168 million and minority interest was $66 million. Year-to-date capital expenditure was a little under $700 million.
On February 20, 2007, subsequent to the end of the second fiscal quarter, the company issued $900 million of 5.30% Senior Notes due March 15, 2012 and $1.1 billion of 5.50% Senior Notes due March 15, 2017. Interest is payable semi-annually on March 15 and September 15 with the first payment due on September 15, 2007. The new debt will increase annual interest expense by approximately $108 million. This will be partially offset by the elimination of interest on the 51/2% Senior Notes retired on March 15, 2007.
The company spent a little over $900 million on stock buybacks in the first half of the year and has repurchase authorization of approximately $1.7 billion under the current stock repurchase program.
Fiscal 2007 Outlook
Earnings per share for the third quarter of 2007 are anticipated in the range of 52 cents to 56 cents including rise in payroll expenditure. Net income for the fourth quarter of 2007 is forecast at $258 million at the higher end of the range.
- Costco is increasing entry-level workers'' pay by $1, to $11 to $11.50 an hour in the remainder of fiscal 2007. This is estimated to cost about $3 million a month pre-tax.
- Capital expenditure is anticipated between $1.4 billion to $1.5 billion.
- Dividend is currently annualized at 52 cents a share or $260 million annually.
- The company plans to open an additional 13 to 14 new warehouses, including the relocation of one warehouse to a larger and better-located facility, prior to the end of fiscal 2007.
Key questions and answers from the second quarter fiscal 2007 earnings call conducted by Costco Wholesale Corp. on March 8, 2007.
Could you elaborate on the change in generic pricing and how does it compare to the $4 generic program that you had previously?
The company matched what its competitor did on the $4 for 30 days generic pricing program. Historically, it costs the company more on generics than $4 to fill any prescription. Costco has its own list of generics and offers 100 pills for $10. This new program protects the company and gives best value to its customers.
Could you comment on rise in inventory levels?
Sales in the last part of January and the first part of February were soft. This led to a rise in inventory levels.
Could you comment on the executive membership traffic and ticket trends?
The 21% of executive members represent 53% of sales in the U.S. and Canada. There was about a 3 percentage point increase in sales penetration of executive members under the 2% reward on upgrading program, over the year ago period. The executive members are growing at a lesser rate. Their renewal rates are now in the low 90s.
Over how much time frame would the sales return reserve be applicable?
The $48 million sales return reserve would be spread over the last year or two and the sales return cost might be a penny per share for the last couple of years.
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