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Costco Profit Exceeds Estimates Even as Gross Margin Narr

Costco Wholesale Corp., the largest U.S. warehouse-club chain, posted second-quarter profit that topped analysts’ estimates and said revenue growth was maintained in February.

Net income rose to $394 million, or 90 cents a share, in the quarter ended Jan. 29, from $348 million, or 79 cents, a year earlier, the Issaquah, Washington-based company said today in a statement. The average estimate of nine analysts compiled by Bloomberg was 87 cents a share.

Costco increased membership fees by 10 percent in November, the first widespread boost since 2006, as rising commodities costs narrowed its profit margin. The chain also has new leadership as former Chief Operating Officer Craig Jelinek became chief executive officer on Jan. 1, replacing retiring co-founder Jim Sinegal.

“The company’s price investments during the quarter resulted in market share gains and stronger top-line growth,” Deborah Weinswig, an analyst for Citigroup Global Markets Inc., wrote today in a note to clients. Weinswig, who is based in New York, has a “neutral” rating on Costco shares.

Costco rose 0.9 percent to $86.06 at the close today in New York. The shares have advanced 3.3 percent this year.

Same-store sales, a key metric for retailers because only established locations are counted, rose 7 percent in both the quarter and in February, excluding changes in gas prices and currency rates, Costco said.

The retailer’s in-store gross margin, or the percentage of sales left after subtracting the cost of goods sold, narrowed to 10.53 percent from 10.83 percent a year earlier. That met Weinswig’s estimate. The decline marks the fourth-straight quarterly drop.

Quarterly net sales gained 10 percent to $22.5 billion, with membership fees advancing 7.7 percent to $459 million.

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