In the news:
Costco earnings rise, but miss Wall Street estimates
Costco announces plan to open 30 stores in next year, including two stores in Spain.
Seattle Times Business reporter
Costco Wholesale posted a slight rise in profit but missed Wall Street expectations due to the effect of weakening foreign currencies on its international earnings, a rise in the cost of stock awards to its employees, and lower U.S. gasoline prices.
The Issaquah-based company’s net profits for the first quarter of fiscal 2014 amounted to $425 million, or 96 cents per diluted share, up from $416 million in the same period a year ago. Analysts had forecast an average of $1.02 in net earnings per share for the quarter, according to Yahoo! Finance. Shares for the company traded at $119.45, down 0.49 percent. Net sales rose to $24.47 billion from $23.20 billion last year.
The results underscore the retail giant’s growing complexity as it extends its warehouse empire overseas; while stores tend to be more profitable than in the U.S., their profits can be eroded by currency moves if the dollar strengthens.
Also, the numbers show how the company’s own success, which has generated a significant bump in share price, is now costing it some money. Stock awarded to employees with longer tenure cost the company 2 cents per share in earnings, chief financial officer Richard Galanti said in a conference call.
Costco is increasingly looking abroad for opportunities. It has doubled its warehouse count in Japan in the past couple of years, and in Australia the number of stores has risen from three to seven in the past year, Galanti said. The executive added that Costco planned to open some 30 stores during fiscal 2014, including 16 in the U.S., four in Australia, three in Canada, one in Mexico and two each in Korea, Japan and Spain.
The company has long operated in the U.K., but the Spanish venture is its first foray in the Continent. According to Galanti, the dire state of the Spanish economy, where unemployment surpasses 25 percent, provides not only a good opportunity for Costco’s pricing strategy, it also will make the warehouse giant feel welcome in a country grateful for the investment. “We provide good, high-paying jobs,” Galanti said.
Costco last month started a partnership with Google to deliver bulk items to homes in the San Francisco Bay Area. But Costco is just kicking the tires of a market it still doesn’t understand. “We’ll keep looking at it. We have no plans currently to deliver to homes,” he said. The Google partnership is “small. And it’s a test,” he said.
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