Costco Warns on Fourth-Quarter and Yearly Profit

Issaquah, Wash. Costco Wholesale Corp. said Wednesday its fiscal fourth-quarter and full-year profit will miss Wall Street expectations, as the warehouse-club operator expects higher energy costs to crimp its bottom line.

The company also said it would expand its stock repurchase plan by $1 billion.

For the fourth quarter, analysts polled by Thomson Financial expect $1 per share in profit, and Costco said it expects earnings "well below" this estimate. Analysts expect full-year earnings of $2.99 per share, according to Thomson.

"Factors negatively affecting our fourth-quarter earnings outlook arise largely from inflation, particularly as to energy costs," Costco CFO Richard Galanti said in a statement.

The outlook reflects weakness in the company's gasoline operations and slightly lower-than-planned merchandise profits as the company holds back on price increases to drive sales.

Galanti also said a greater-than-anticipated LIFO charge, which refers to the last-in-first-out method that assumes the most recent inventory purchases or goods manufactured are sold first. During times of rising prices, that results in a charge that eliminates inflationary profits from net income.

The company also said its board expanded its buyback plan by up to $1 billion, which is in addition to the $5.8 billion already authorized, and it declared a quarterly cash dividend of 16?, payable on Aug. 22 to shareholders of record on Aug. 8.

Costco plans to open seven to eight new warehouses (including the relocation of two warehouses to larger and better-located facilities) prior to the end of its 2008 fiscal year. It plans to open between 20 and 25 additional new units during the 2009 fiscal year.