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.
