Costco reports Q2 sales up, net income down

ISSAQUAH, Wash. — Costco reported on Thursday a decrease in second-quarter net income, which it attributed to weaker sales and gross margin results in certain non-foods merchandise categories, weaker gross margins in its fresh foods business and lower reported international profits.



Net income for the quarter was $463 million, or $1.05 per diluted share, compared with $547 million, or $1.24 per diluted share, last year.

Sales, however, rose 6% during the quarter to $25.76 billion. Comparable sales for the 12 weeks ended Feb. 16 rose 3%. In the United States, comparable sales rose 4%.



"Last year's net income was positively impacted by a $62 million ($0.14 per diluted share) tax benefit in connection with the portion of the special cash dividend paid by the company in December 2012 to the company 401(k) plan participants. Even with that distinction, however, the year-over-year comparison was unfavorable,” said Richard Galanti, CFO of Costco. “Despite satisfactory sales results during the second fiscal quarter, several other factors led to lower earnings. These factors included weaker sales and gross margin results in certain non-foods merchandise categories, particularly during the four-week holiday selling season; weaker gross margins in our fresh foods business; and lower reported international profits, resulting from the significant weakening of foreign exchange rates. The first four-week period of the quarter represented the majority of earnings underperformance in the quarter."