Warehouse-club operator Costco Wholesale Corp. reported nearly flat first-quarter profit Thursday, citing the stronger dollar and cuts by U.S. consumers in spending on nonessentials.
Profit for the three months ended Nov. 23 rose less than 1 percent to $262.5 million, or 60 cents per share, from $262 million, or 59 cents per share, a year earlier. The results include charges of 5 cents per share related to an accounting adjustment stemming from life-insurance contracts and a write-down on corporate investments.
Revenue rose 4 percent to $16.39 billion from $15.81 billion last year.
Analysts polled by Thomson Reuters, on average, predicted a profit of 62 cents per share on revenue of $16.6 billion. Analyst estimates typically exclude one-time items.
The Issaquah, Wash.-based company said in October that it expected to earn 61 cents to 65 cents per share.
Costco said consumers pulled back on spending on nearly all items outside of food, especially in the later part of the quarter, despite more aggressive pricing.
“I think people’s habits have changed,” Richard Galanti, Costco’s chief financial officer said.
The only exception in the trend away from nonfood items was an uptick in television sales in November, thanks to a glut of inventory at some vendors, which allowed Costco to lower prices.
Sales on stores open at least one year, a key retail metric known as same-store sales, rose 1 percent, including a 3 percent rise in the U.S. and a 7 percent decline internationally.
The summer’s gas price inflation still helped sales in September but was “essentially a non-issue” for sales in October, and continued drops in pricing hurt sales in November, which Galanti said made gas sales a “non-factor” for the quarter.
The company said international results, mainly in Canada, the U.K. and Korea, were hurt by the stronger dollar.
Costco operates 550 warehouses in the U.S. and Puerto Rico, Canada, the U.K, Korea, Taiwan, Japan and Mexico.
The company opened a total of eight new locations during the quarter and closed one that it will reopen later.
Costco gave what it called “vague” guidance, saying it was too difficult to predict earnings during such an uncertain economy. But Galanti said analyst estimates of 75 cents per share for the second-quarter are “on the high side.” He did not comment on analyst expectations of $3 per share for the 2009 fiscal year.
“We’re going to continue to price aggressively to drive business,” Galanti told investors on a conference call. “We’ve got a lot of good things going on merchandising-wise. We’re not going to go crazy here, but we are looking ahead to what the business looks like after we get out of this economy.”
Standard & Poor’s Equity Research reiterated its “hold” recommendation on Costco shares Thursday, although it cut its expectations for sales growth and margin expansion to reflect the continued drop in demand for discretionary goods in the weak economy.
