Membership, profits grow again at Costco

The holidays were happy for Costco with solid gains in sales and favorable membership trends fueling profits even as low gas prices and a strong dollar had a profound effect on same store sales.

Sales increased 4% to $26.9 billion and membership sales grew 5.8% to $582 million, resulting total revenues that grew 15.8% to $27.5 billion during the company’s second quarter period ending Feb. 15. Total company same store sales advanced 8% excluding the impact of fuel prices and a stronger U.S. dollar.

However, comps in the U.S. rose 4% if fuel sales are included in the calculation while international comps actually declined 2% after converting sales in foreign currencies to the dollar. Net income increased 29.2% to $598 million, or $1.35 a share, from $463 million, or $1.05 a share, during the second quarter the prior year.

The healthy growth in profits was aided by a decision in late January to pay a $5 a share special dividend in addition to the company’s regular quarterly dividend of 35.5 cents a share. Costco used $2.2 billion in cash and additional borrowings to pay the dividend and because some of the payments went to shares held in tax-deferred 401K accounts the company realized a tax benefit of $57 million, or 13 cents a share. Excluding this one-time benefit and a negative $14 million, or three cents a share, expense related to an ongoing tax matter, Costco’s second quarter net income would have increased a still respectable 19.9% to $555 million, or 92 cents a share.

Overall profitability was aided by improved gross margins which expanded 54 basis points to 11.07% of sales, easily offsetting an uptick in expenses which saw selling, general and administrative costs increase to 9.94% of sales. Costco ended the quarter with 671 warehouses, including 474 in the United States and Puerto Rico, 88 in Canada, 34 in Mexico, 26 in the United Kingdom, 20 in Japan, 11 in Korea, 10 in Taiwan, seven in Australia and one in Spain.