Costco Third-Quarter Profit Misses Estimates on Rising Costs

Costco Third-Quarter Profit Rises
Costco boosted revenue as consumers continued to pursue bargains at the chain, which lets shoppers and small businesses buy discounted goods including groceries and televisions. Photographer: Brendan Smialowski/Bloomberg

May 25 (Bloomberg) -- Costco Wholesale Corp., the largest U.S. warehouse-club chain, declined after third-quarter profit missed analysts’ estimates, hurt by increasing costs for gasoline.

Net income rose to 73 cents a share in the quarter ended May 8, and included a $49 million charge to offset inflation, the Issaquah, Washington-based company said in a statement today. Analysts projected 77 cents, the average of 21 estimates. Revenue rose 16 percent.

The results were hurt by higher costs for fuel and food such as cheese and coffee, Chief Financial Officer Richard Galanti said today on a conference call. Rising gasoline prices made up $11 million of the $49 million charge, Galanti said.

“Inflation is hitting everybody and it’s going to continue,” Galanti said. “It’s here. When will it subside? Hopefully soon.”

The company, led by Chief Executive Officer James Sinegal, recorded a $6 million charge to offset inflation in the second quarter after not having one for more than two years.

“It’s disappointing that the stronger sales didn’t sustain the earnings growth rate,” said Robert Summers, an analyst for Susquehanna Financial Group in New York who has a “neutral” rating on Costco. “You are probably going to have another quarter or maybe two of gross margin pressure.”

Gross margin totaled 10.5 percent, down from 10.88 a year ago, Galanti said.

Costco fell $1.03, or 1.3 percent, to $80.32 at 4:01 p.m. in Nasdaq Stock Market trading. The shares had risen 13 percent this year before today, while competitor BJ’s Wholesale Club Inc. has gained 4.8 percent. BJ’s posted first-quarter income of $33.7 million, or 62 cents a share, on May 18 that surpassed the average projection of analysts.

A year ago, third-quarter profit was $306 million, or 68 cents a share.

(Costco held a conference call at 11 a.m. New York time to discuss the results. To listen, visit COST US <Equity> EVT <GO>.)

To contact the reporter on this story: Matthew Townsend in New York at mtownsend9@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net