By Maria Armental
Costco Wholesale Corp. on Wednesday posted an 8.7% decline in second-quarter profit, though the warehouse chain's comparable-store sales increased, breaking a streak of declines.
For the period ended Feb. 14, Costco said the closely watched metric rose 1%, the first increase following three straight quarters of declines. Still, Costco's performance was hurt by currency fluctuations and lower fuel prices; factoring out those effects, comparable sales rose 5%.
Costco's comparable-store sales for the four weeks ended Feb. 28 were flat, but rose 4% when currency and fuel impacts were excluded.
Costco, the second-largest U.S. retailer behind Wal-Mart Stores Inc., is also one of the largest fuel sellers in the country. The company has said lower gasoline prices generally hurt its overall sales growth but help gross margins. In the latest quarter, its gross margin was 11.2%, up from 11.1% a year earlier.
Still, the rise in merchandise costs and overhead expenses outpaced Costco's revenue gains, dinging the bottom line and hurting operating margins, which declined to 3% from 3.2%.
Over all for the quarter, Costco reported a profit of $546 million, or $1.24 a share, down from $598 million, or $1.35 a share, a year earlier. Revenue, which includes membership fees, rose 2.6% to $28.17 billion.
Analysts surveyed by Thomson Reuters had projected a profit of $1.28 a share on $28.42 billion in revenue.
In the latest period, membership fees rose 3.6% to $603 million, while sales, which account for the bulk of revenue, rose 2.6%
Costco is expected to detail its membership figures Thursday during a conference call with analysts. As of the end of its first fiscal quarter, it reported 45.4 million members, up from 44.6 million members a year earlier. Renewal rates have been largely unchanged at 91% in the U.S. and Canada and 88% world-wide.
Weighing on the company's profit lately has been its transition to a new co-branded credit card in the U.S. As part of the arrangement, Costco receives a portion of revenue when people sign up for its co-branded card. But as it transitions to its new deal with Citigroup and Visa, its previous partner, American Express, has stopped offering the co-branded card. The change, Costco said, lowered first-quarter profit by about $15 million, or 2 cents a share, and is expected to affect results into the fourth quarter. The company didn't detail the effect on Wednesday.
Costco has 698 warehouses, most of which are located in the U.S. and Puerto Rico--though it also has stores in Canada, Mexico, the U.K., Japan and other countries. More than a quarter of Costco's annual sales are abroad, with gas accounting for about 10% of the top line, according to company filings.
The company's stock closed at $152.79 on Wednesday and is down 5.4% so far this year.
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