Costco's Profit Jumps as Sales Growth Speeds Up

The Globe and Mail

 

Costco Wholesale Corp. says its profit climbed 46 per cent in the fiscal third quarter as sales and membership revenue both rose.

Costco, the largest wholesale club operator in the U.S., says it earned $306-million, or 68 cents per share. That's up from $210-million, or 48 cents per share, a year ago. Revenue rose 12 per cent to $17.78-billion.

Thomson Reuters says analysts expected 66 cents per share and $17.63-billion in revenue.

The Issaquah, Wash., company says it gained $14-million from a reversal of a tax charge. A year ago it paid $34-million to settle a lawsuit.

Costco says sales at stores open at least a year grew 10 per cent. Excluding higher gas prices and changes in currency exchange rates, those sales rose 4 per cent.

Coka-Cola Returns To Costco Next Week

Atlanta Journal Constitution

Coca-Cola Co. beverages will return to Costco store shelves as soon as next week, putting the products back in the wholesale retailer in time for the year-end holiday push.

Costco stores stopped ordering new Coca-Cola products in mid-November after a breakdown in negotiations between the two companies.

Beverage Digest, an industry trade publication, first reported the agreement Thursday. Atlanta-based Coca-Cola and Costco Wholesale Corp., based in Issaquah, Wa., both confirmed the report.

In a conference call with analysts, Costco Chief Financial Officer Richard Galanti said Coke products would start returning next week. He would not provide details on the agreement but said Costco was pleased to have Coke back on store shelves. It had previously put up signs in stores notifying customers that Coke was not being carried.

“I think our sign that we had in stores everywhere basically said it all -- ‘Until we can provide our members with these products at competitive prices and provide our members with value, we’re not prepared to sell it’,” Galanti said in the call. “We’re now going to sell it, so that’s really all I can say at this point.”

Coca-Cola also declined to provide details on the agreement.

“We can confirm that Coca-Cola products will continue to be listed at Costco,” Coca-Cola spokesman Scott Williamson said. “Our program aligns Coca-Cola's brand and package offerings with the needs of Costco's members in a way that is fair and equitable for both Costco and Coca-Cola."

Costco serves both consumers and smaller retailers, who use the store for buying in bulk. The holidays are important for Coca-Cola because it's a staple at many events, parties and family gatherings.

Coca-Cola and Costco both benefit from reaching an agreement, said John Sicher, editor and publisher of Beverage Digest. Costco operates 566 warehouses, including 413 in the United States and Puerto Rico.

“It means that going into the year-end holidays both consumers and small retailers will be able to buy Coke products at the major retailer,” Sicher said.

Foodstamps To Be Accepted At Costco Nationwide

USA Today

PORTLAND, Ore. (AP) — Costco Wholesale said Wednesday that it will start accepting food stamps at its warehouse clubs nationwide after testing them at stores in New York.

It's a big about-face for a retailer that has catered to bargain-hunting but affluent shoppers, and it's a sign of the grim reality facing retailers and their customers. The number of Americans relying on government food subsidies to eat recently hit a record 36 million.

Costco (COST), which is based in Issaquah, Wash., began accepting food stamps at two New York stores in Brooklyn and Queens in May under political pressure from officials who worked with the company on opening a club in a redevelopment area in Manhattan.

The company quickly expanded to all six of its stores in New York state.

Company officials said they had doubted many customers would use food stamps but it turned out new members said they were joining precisely because the company accepted the assistance program.

"We recognize these are tough times and more people are food-stamp-eligible," Costco Chief Financial Officer Richard Galanti said Wednesday.

Costco said it hopes to accept food stamps at half of its 407 stores in the U.S. and Puerto Rico by Thanksgiving and at the remainder as soon as it wins regulatory approval in each state.

While most major grocery chains have accepted the food subsidy for years, more retailers have been accepting food stamps as the process has eased and the number of people using them has soared.

Most users no longer receive stamps, but instead carry the value on a card that can be swiped at checkout much like a bank debit card.

That makes it easier and more discrete for shoppers and speeds the checkout and reimbursement processes for retailers.

Because about half of Costco's customers are small businesses and the rest tend to be more affluent than shoppers at traditional grocery chains, Galanti said, executives had assumed there wouldn't be much response to it accepting food stamps but realized that assumption may have been wrong.

"Certainly this economy was a wake-up call," Galanti recently told investors. "It is not just very low-end economic strata that are using these (who) typically don't have purchasing power."

Food retailing consultant Bill Bishop, of Willard Bishop Consulting, said Costco's decision shows how pervasive the pressure on consumers has become. He said more and more grocers are seeing their sales peak and fall based on when assistance benefits are distributed.

Family Dollar Up, Costco Down

From Market Watch

Wholesale-club chain Costco Wholesale Corp. said Wednesday that its fiscal-fourth-quarter profit declined 6% as the recession continued to hurt demand in the U.S. and more employees became eligible for health care.

Discounter Family Dollar Stores Inc., meanwhile, reported a 13% profit rise as it continued to win budget-conscious shoppers seeking its discounted name-brand consumables.

Signaling improved consumer sentiment and that demand may be gradually picking up for bigger-ticket and non-essential items, both retailers' results beat Wall Street expectations with Costco also reporting better-than-expected September sales. Family Dollar's September sales were at the top end of management's forecast range.

"We see a margin turnaround from a recovering sales trend in non-food categories and regional improvement from California," which represents 30% of Costco's U.S. stores, said Morgan Stanley analyst Mark Wiltamuth, who upgraded Costco last month.

Bolstered by the later back-to-school start, a Labor Day calendar shift and cooler weather in the Northeast toward the end of the month, retailers' September sales may yield a positive surprise as the industry's crucial holiday selling period draws into view.

Costco

Costco's net income rose to $374 million, or 85 cents a share, from $398 million, or 90 cents, in the year-earlier quarter, when it had a 7 cents per-share charge related to inventory accounting and a litigation settlement, the Issaquah, Wash.,-based company said.

Comparable-store sales declined 5%. That reflected declines of 6% in the U.S. and 3% internationally. Excluding year-over-year lower gasoline prices and foreign exchange, sales would have fallen 1% in the U.S. and risen 7% overseas. A stronger dollar against currencies, primarily in Canada, Korea and the U.K., hurt translated international results.

Still, analysts said food deflation and other headwinds that have been pressuring the company are dissipating.

Costco said last month that results have showed slight improvement in bigger-ticket items such as computers.

For September, same-store sales rose 1%, the first increase since September 2008 and compared against analysts' average estimate of a 0.7% decline. That included a decline of 1% in the U.S. and a rise of 6% overseas. Excluding currency and gasoline deflation impacts, sales would have increased 4%, including a 3% increase in the U.S. and 9% internationally.

Costco operates 560 warehouses, including 407 in the U.S. and Puerto Rico, 77 in Canada and 21 in the U.K.

Selling, general and administrative expenses rose 3.9% to $2.25 billion. The company said higher health-care eligibility and usage led to increased employee-benefit costs.

Family Dollar

Family Dollar said its fiscal-fourth-quarter earnings rose 13% to $60.1 million, or 43 cents a share, from $53.2 million, or 38 cents a share, in the same period a year ago.

Sales in the quarter ended Aug. 29 rose 2.6% to $1.81 billion. Its comparable-store sales rose 1%.

For fiscal 2010, the company expects net sales will increase 5% to 7% and same-store sales to grow 3% to 5%. Profit for the year is expected to be $2.15 to $2.35 a share. The Matthews, N.C.,-based Family Dollar forecast profit this quarter to be 45 cents to 50 cents a share after September sales climbed about 5%. The company also plans to open about 200 new stores this year.

"While predicting near-term economic conditions remains difficult, we believe that the current consumer focus on saving money will remain strong in 2010," said Chief Executive Howard Levine.

Gross profit, as a percentage of sales, widened to 34.8% from 33.6%, helped by lower freight expense, lower inventory loss or theft, lower discounts and higher purchase mark-ups, all of which more than offset stronger sales of less profitable consumable merchandise.

Whole Foods, Starbucks, Costco Propose Compromise Over Congressional Union Bill

Originally Posted to Triangle Business Journal

Whole Foods Market Inc., Starbucks Corp. and Costco Wholesale Corp. introduced a proposed compromise over the weekend to a bill before Congress that would make it easier to create unions.

Austin, Texas-based Whole Foods was joined by Seattle-based Starbucks and Issaquah, Wash.-based Costco in the proposal, which they say is an alternative to the controversial Employee Free Choice Act.

The EFCA – pushed by labor officials and many Democrats and heavily opposed by business leaders – would allow a majority of employees at a company to form a union by signing cards. Currently, if a majority of employees sign the cards, a process known as "card check," then employees vote in a secret-ballot election on forming a union.

The proposal from the companies, calling themselves the Committee for A Level Playing Field, would reject unionization via card check. It also would strip from the EFCA a controversial provision requiring unions and employees to go to federal arbitration if they cannot reach a deal within 120 days of a union's formation.

But the compromise legislation would allow unions access to employees during nonworking hours at a neutral location – a first – and mandate a fixed time for elections so companies wouldn’t be able to delay a vote. Delays in union votes are common complaints among labor organizers.

Speaking to reporters in a conference call, attorney Lanny Davis, who is representing the companies in the proposal, said the goal is to “trigger a conversation” between the two sides in the debate.

North Carolina business leaders are among those opposed to the card check bill, which they say would put a major dent in many of the state's economic development advantages.

Costco Leads Expected String Of Retail Warnings
As Originally Posted in The Wall Street Journal

Costco Wholesale Corp. warned that its fiscal second-quarter profit will fall "substantially below" Wall Street estimates -- foreshadowing what's expected to be a glum parade of downbeat news in the January retail-sales reports that come out Thursday.

Costco, the nation's largest warehouse club chain by sales, had outperformed the retail pack for much of 2008. But Wednesday it said U.S. same-store sales in January were flat compared with a year earlier, while sales at its foreign stores, including markets such as the U.K. and Japan, fell 9%, partly because of unfavorable currency exchange rates.

Citing the "uncertainties surrounding the economy," Costco Chief Financial Officer Richard Galanti declared that the company will no longer publicly forecast financial performance for the remainder of its current fiscal year ending Aug. 30.

Most big retailers report January sales Thursday, and many analysts and consultants are predicting more companies will yank earnings forecasts altogether, as growing unemployment depresses consumer spending and clouds timetables for recovery from the recession.

At Costco, the recession cut into its sales of nonfood items and crimped profit margins in recent weeks as the company lowered prices to spur sales and boost market share, said Mr. Galanti.

Still, he struck an optimistic tone, saying that he believed the pressure on Costco's margins would soften in coming weeks as manufacturers lowered prices for retailers in response to falling commodity costs.

"Who knows where bottom is and how long it will last," Mr. Galanti said in an interview. "But relative to other retailers, we believe we are winning market share, not losing it."

In general, warehouse and discount retailers such as Costco and Wal-Mart Stores Inc. have held up better in the weak economy as consumers seek out lower prices, while luxury retailers have been among the worst hurt. Tuesday, Neiman Marcus Group Inc. reported a 24% decline in same-store sales and warned that it would post a quarterly loss.

Industry experts believe more retailers will announce job cuts and other belt-tightening moves as they brace for a brutal business climate in the first half of 2009, and possibly longer. Macy's Inc. Monday announced 7,000 layoffs as part of a broader corporate reorganization. Numerous retailers including Target Corp., Best Buy Co. and Sears Holdings Corp. have recently announced corporate staff cuts.

Thomson Reuters, which maintains an index tracking 35 top retailers, predicts January same-store sales will fall 2.3% compared a with a year earlier. Remove Wal-Mart from the equation, and the weighted-average decline grows to 5.7%.

In particular, it expects double-digit sales declines from department-store and apparel chains, which have been hit particularly hard by discretionary spending declines.

January is traditionally a slow time for retail sales, making up a small fraction of annual totals, but analysts are closely watching this month's figures for signs of which major retailers continue to struggle with bloated inventory levels well after the holidays -- and which may be failing.

The reduced demand is leading retailers to step up efforts to carry fewer, better-selling brands, or to pare back stocked inventory, requiring suppliers to replenish shipments more frequently.

That was already a retail trend but is being accelerated by the recession, said Lorcan Sheehan of ModusLink Global Solutions Inc., which helps companies manage supply chains.

"It is a difficult time for the number-two, three and four brands," Mr. Sheehan said.

While Costco posted net sales of $5.10 billion for January, flat with $5.11 billion a year earlier, Costco's Mr. Galanti saw some hopeful signs. Television sales were up after sharply discounted promotions that included bundling pairs of high-definition sets, and membership renewal rates were at record levels.

Still, the warning that the company would miss analysts' earnings estimates for the second quarter ending Feb. 15 -- and lack of guidance about what the future would hold -- clearly disappointed investors.

In 4 p.m. composite trading Wednesday, Costco shares were down on the Nasdaq. But shares were up slightly in after-hours trading.

Costco Cabernets

It sure seems like a Costco Christmas, doesn't it? We thought about that as we considered our recommendations for Thanksgiving wine this year.

Thanksgiving is the single most special meal of the year for many of us and the wine choice is always a matter of intense consideration. Every wine writer dutifully offers advice on the "perfect" pairing, but there are far too many variables -- from what flavor Jell-O mold to whether the bird is turkey, goose or actually made of tofu -- to make any single choice.

Cabernet Sauvignon goes great with the Thanksgiving bird. Tastings columnists Dorothy Gaiter and John Brecher suggest some surprising places to buy bottles of wine, and Blenders that won't roast your wallet.

Overall, it's important that the wine be fairly light on its feet -- not too alcoholic, not heavy, not overly oaky -- so it doesn't seem like yet another side dish on a table already overloaded with them. Many people start the festivities with sparkling wine as an aperitif, so keep in mind that sparklers are often outstanding accompaniments to food, too, because of their good acidity and bubbly digestibility. If you serve a white wine, we once conducted a tasting with our own annual Thanksgiving meal -- roast turkey, bread stuffing, cranberry sauce, sweet potatoes with marshmallows -- and found that a dry Riesling or Pinot Gris from the U.S. worked well. In terms of reds, Pinot Noir is a fine choice, especially the ever-improving Pinots from Oregon.

Now, all that said, our longtime advice for Thanksgiving -- what we have enjoyed every year -- is an American Cabernet Sauvignon with some age on it. Here, briefly, are the reasons: 1) It's an American holiday and the wine should be American. 2) We prefer red wine with the meal because it stands up to such an imposing menu and it's appropriate to the season. 3) Good Cabernet Sauvignon has the structure, stature and bearing to belong at the Thanksgiving table. It's not for nothing that America's best, most-famous and most-expensive wines continue to be made from Cabernet. 4) An older Cabernet, with tastes that have melded and tannins that have softened, is great with both white and dark turkey meat and pairs well with the other dishes without overwhelming them.

So if you do have any older Cabernet Sauvignon around the house, now is the time to open one. The grim financial news of the past few months certainly should remind all of us that the time to drink our good wine and give thanks for what we have is now.

We realize that most Americans don't have any older Cabernet in the house, but we would still recommend Cabernet for Thanksgiving. It is the world's most majestic red grape, after all, and this is the time to showcase it. There are more and more outstanding merchants these days who would love to talk with you about a fine wine for Thanksgiving. Where do Americans actually buy wine, though? Costco.
[Wines at Club Stores] Juliette Borda
The Dow Jones Warehouse Cabernet for Thanksgiving Index

In a tasting of every American Cabernet Sauvignon we could find at Costco and Sam's Club stores in New Jersey, these were our favorites. If you were going to buy your Thanksgiving Cabernet from these stores, these are the ones we would recommend. The offerings at the warehouse stores generally do not include many outstanding, small-production Cabernets that are available at the burgeoning number of excellent neighborhood wine stores all over the U.S. The prices we have listed are the prices we paid at the Costco and Sam's stores. The Charles Krug and Raymond generally cost about $5 more, while the others cost about what we paid.

Charles Krug Winery 2005 (Yountville, Napa Valley). $20.99.
Very Good.
Best of tasting (tie).
Lovely dark color, with cedar on the nose. Ripe, dark fruit, excellent tannins and some aging potential. A complete wine, with layers of flavor -- Bordeaux-like structure and rich California fruit.

Simi Winery 2005 (Alexander Valley). $20.48.
Very Good.
Best of tasting (tie).
Looks rich and even smells like ripe, chewy fruit, with blackberries, blueberries and savory spices of the kind we'd put into stuffing. Earthy, with good tannins and a little bit of bittersweet chocolate. Big, rich, friendly wine.

J. Lohr Winery Estates "Seven Oaks" 2006 (Paso Robles). $11.52.
Good/Very Good.
Best value.
Pleasant and grapey, with some acidity and blackberry fruit. Nicely dry finish, with some herbs and pepper. Well-balanced. This will be drunk merrily. We didn't like the 2004.

Raymond Vineyard & Cellar "Reserve" 2005 (Napa Valley). $22.99.
Very Good.
Lovely fruit and nicely dry. Tastes classy, with some structure and even a hint of tobacco, like a fine Bordeaux. A wine of some stature, appropriate to a fine meal.

Sterling Vineyards 2005 (Napa Valley). $20.86.
Good/Very Good.
Crisp, clean and nicely acidic. Mouth-watering, with some minerals and a nice little bite at the end. Good with food because it's not too heavy. John thought it was thin; Dottie thought it was simply restrained.

NOTE: Wines are rated on a scale that ranges: Yech, OK, Good, Very Good, Delicious and Delicious!

Costco has become America's wine store. Its world-wide sales of wine in the fiscal year ended Aug. 31 totaled $1.1 billion, the company said. In the U.S., Costco warehouse-club stores sold more than 75 million bottles of wine, making it the nation's top retailer of wine.

After a slow start, Wal-Mart is trying to catch up. More than 2,000 of its stores now have beer and wine licenses and of the 594 Sam's Club stores, 453 sell wine. Wal-Mart and Sam's Club declined to release any figures on their wine sales, but of all the money that Americans spend on wine at stores in the U.S., 10% is spent at club stores, according to Nielsen Co., which tracks sales in food and drug stores.

It seems to us, in these difficult times, that many people will be looking to Costco and Sam's for their Thanksgiving wine. So we visited Costco and Sam's stores and picked up every American Cabernet Sauvignon they offered, regardless of price or vintage.

What we have said about Costco's wine prices in the past -- and what we found again this year, both at Costco and Sam's -- is that the prices are good. They are not giving away wine at ridiculously low prices and, in fact, just about all of the wines are available for less somewhere else. But the prices are consistently in the low range among stores, so that, overall, the prices are fair and reasonable, especially because buying wine and food at the same place saves gas.

We found 40 different U.S. Cabernets at Costco and Sam's. The selection at Sam's was lower-end, with most of the wines priced at $20 or less. The only bottle that cost more than $26 was Chateau St. Jean Cinq Cépages 2000, which was $54.56. Most of the wines were familiar names, though we also saw, for the first time, Newman's Own Cabernet Sauvignon 2006 ($12.88). Costco also offers low-end wines, but has made its reputation by selling wines in all price ranges. Among the wines we bought there were Pine Ridge ($65.99), Grgich Hills ($53.99), Silverado ($42.99) and Joseph Phelps ($43.99). We also found a Robert Mondavi Reserve 2005 for $98.99.

Because of the high turnover, you can never be sure what wine you will find at any Costco or Sam's, but, overall, they provide a pretty good overview of wider-distribution American Cabernet Sauvignon, with names like Beaulieu, Beringer, Kendall-Jackson, Kenwood and Louis Martini. Most of the wines we bought were from the fine 2005 vintage. Neither Costco nor Sam's offered a house-brand Cabernet when we were shopping, but Costco did have a house-brand Kirkland Meritage 2005 (a Bordeaux-style blend that, in this case, was 29% Cabernet), so we included that. Most of the wines at Costco and Sam's are produced in significant quantities by large companies, such as Constellation Brands, that own many wineries. For the kind of small-production, personal Cabernets that often offer special depth and vision, it really is a good idea to visit a fine local wine store.
DO THEY STACK UP?

We tasted the 40 wines in blind flights over several nights. Foremost on our minds: Is this a wine we would recommend to friends for the most festive, most carefully prepared, most filling dinner of the year?
Toasting a New Vintage

A few of Dorothy Gaiter and John Brecher's favorite wines to still celebrate the arrival of 2008 Beaujolais Nouveau. Read Wine Notes.

On Nov. 20, you'll have the chance to enjoy the earliest fruits of the French harvest. See the list of worldwide Beaujolais Nouveau parties.

The answer, in far too many cases, was no. For years now, we have warned that American Cabernet Sauvignon was getting stupid. Instead of layers of flavor dominated by rich fruit, too many have become leaden and lab-made, tasting more of vanilla, oak, herbal infusions and even sugar.

Unfortunately, this tasting showed that this sad trend has continued. A majority of these wines would be absolutely wrong with your Thanksgiving meal -- far too sweet, far too heavy. It is so important that wines have good acidity and a clean, dry finish so diners are prepared for the next bite of food. Too often, these left us feeling that we'd just sucked down some pancake syrup.

Your guests would not drink them lustily because they are hard to drink. They would eat less because the wine itself is so heavy. They would not enjoy dinner as much because they wouldn't be drinking wine as freely as they might, and conversation -- the precious time together getting caught up -- would certainly suffer. And you know how carefully you chose just the right herbs for the stuffing? Forget it. No one would be able to taste that kind of subtlety. (By the way, we liked the expensive Mondavi, but it was not among our favorites. We did not like the Kirkland Meritage or Newman's Own.)

That means it's important to choose very carefully (and at these stores you're likely on your own). There were some exceptions, as listed in the attached index, and these are the ones we'd recommend. These are wines that tasted like Cabernet, with good fruit, nice acidity and real balance. Any one of them would be a fine addition to your Thanksgiving meal. From the first whiff to the long finish, these would remind everyone at the table that America's bounty includes some fine wines.

Good American Cabernet tastes like America to us and gives us something special in our glass with which to toast a future that we're sure will be very exciting. Happy Thanksgiving.