Costco Earnings Trail Estimates on Product Discounting

Costco Wholesale Corp. (COST), the largest U.S. warehouse-club chain, posted fiscal second-quarter profit that trailed analysts’ estimates as discounts meant to attract holiday shoppers cut into sales.

Net income in the quarter ended Feb. 16 fell 15 percent to $463 million, or $1.05 a share, from $547 million, or $1.24, a year earlier, the Issaquah, Washington-based company said today in a statement. Analysts projected profit of $1.17, the average of estimates compiled by Bloomberg.

Sales and gross margins were weaker in some non-food categories, especially during the four-week holiday selling season, Chief Financial Officer Richard Galanti said in the statement.

Costco has worked to lower its already discounted prices in the past year to attract more shoppers to its annual memberships. Second-quarter sales at stores open more than a year increased 5 percent, excluding changes in gasoline prices and foreign-currency exchange rates.

Revenue by similar measures fell 0.4 percent at Wal-Mart Stores Inc. (WMT) in the U.S. and dropped 2.5 percent at Target Corp. (TGT) in their most recent quarters.

Costco’s total second-quarter sales rose about 5.8 percent to $26.3 billion. Analysts estimated $26.7 billion, on average. Revenue from membership fees advanced 4.2 percent to $550 million.

Costco fell 2.8 percent to $113.26 at the close in New York. The shares have declined 4.8 percent this year, compared with a 1.6 percent advance for the Standard & Poor’s 500 Index.

To contact the reporter on this story: Renee Dudley in New York at rdudley6@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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