PWW

Portfolio AI Insights

pww.comCostco Wholesale Corporation, Q2 2008 Earnings Call, Mar-05-2008 - NasdaqGS:COST

NasdaqGS:COST

Richard A. Galanti [Executives] 💬

During the Costco Wholesale Corporation Q2 2008 Earnings Call, Richard A. Galanti provided a comprehensive overview of the company's performance and various aspects of its operations. Below is a detailed summary of his remarks:

General Overview

  • Earnings Per Share (EPS): For the quarter, EPS came in at $0.74, up 37% from the previous year.
  • Normalized EPS: Last year's second quarter normalized EPS was $0.66, making this quarter's $0.74 a 12% increase.
  • Sales: Total sales were up 12% for the quarter, and the 12-week comp figure showed a 7% increase.
  • Comp Figures: Benefited from gasoline inflation and strong foreign exchange, primarily in Canada.

Sales Performance

  • Monthly Comp Figures: December, January, and February all reported a 7% comp increase.
  • Average Transaction Increase: About 5.5% for the quarter.
  • Average Frequency Increase: A little better than 1.5% for the quarter.
  • Cannibalization Impact: Negative 100 basis points this quarter, similar to the previous quarter.
  • February Comp: 7% reported comp, with an average transaction increase in the high 4s and average frequency increase of about 2.5%.

Impact of Weather and Calendar Shifts

  • Weather Impact: Estimated to have impacted sales by 30 to 40 basis points.
  • Calendar Shifts: Family Day in Canada and Lunar New Year in Taiwan and Korea resulted in a 40-basis-point impact.

Membership Trends

  • Membership Fees: Reported $342.9 million, or 2.06% of sales, up about 11% in dollars.
  • Renewal Rates: Fluctuating between 86 and 87, currently at 87.
  • Executive Members: 6.9 million at quarter-end, added about 18,000 per week in the last 12 weeks.

Gross Margin

  • Reported Gross Margin: Improved by 24 basis points.
  • Normalized Gross Margin: Improved by 13 basis points.
  • Core Merchandising: Improved by 29 basis points.
  • Ancillary Businesses: Decreased by 12 basis points.
  • 2% Reward: Decreased by 4 basis points.

SG&A Expenses

  • Reported SG&A: Lower by 33 basis points.
  • Normalized SG&A: Higher by 12 basis points.
  • Operations: Higher by 11 basis points.
  • Central Expense: Slightly better year over year.
  • Stock Option Expense: Higher by 3 basis points.

Pre-Opening Expenses

  • Pre-Opening Expenses: $9.7 million, up from $7.5 million last year.

Asset Impairment

  • Benefit: Year over year benefited in this area due to a gain on a property sale in Canada.

Operating Income

  • Operating Income: Up 40% on a reported basis, up 13% on a normalized basis.

Interest Expense

  • Interest Expense: Higher year over year due to a $2 billion debt offering in mid-February.

Cash Investments

  • Cash Investments: $1.15 billion invested in enhanced cash money market funds.
  • Impairment Loss: $2.8 million recorded on some cash investments.

Balance Sheet

  • Cash and Cash Equivalents: $2.267 billion.
  • Short-Term Investments: $833 million.
  • Inventory: $5.236 billion.
  • Total Current Assets: $9.669 billion.
  • Total Liabilities: $11.649 billion.
  • Stockholder’s Equity: $8.946 billion.

Expansion

  • New Units: Opened 13 net new units in the first half of the fiscal year.
  • Future Openings: Plans to open 37 new units, including 9 relocations, for a net of 28 new units.

Online Sales

  • Costco Online: Sales up 45% for the quarter and the half.

Stock Repurchases

  • Repurchases: Bought back $4.254 billion, or 80.4 million shares, at an average price of $52.93.

Guidance

  • Q3 2008: First Call estimate of $0.65 is considered an okay number.
  • Fiscal Year 2008: First Call estimate of $2.99 is considered comfortable.

Supplemental Information

  • Supplemental Information: To be posted on the investor relations site later that morning.

Feedback