Uncertainty takes toll on Costco

Shares of Costco are being pummeled today, following the release of January sales, a downward revision to second quarter earnings and the suspension of guidance for the remainder of its fiscal year.

Same-store sales at U.S. clubs were flat for the four-week period ended Feb. 1 and, if the deflationary effect of gas prices is excluded from the calculation, same-store sales increased 4%. Total company same-store sales declined 2%, due largely to the negative effect of 9% decline in international same-store sales.

The negative 2% comp was actually better than the negative 3.7% analysts had forecast, but it came at the expense of profits as Costco was aggressive with pricing.

“General economic conditions have negatively affected our sales, primarily in non-foods, and merchandise margins,” said Costco CFO Richard Galanti said. “Our margins have also been impacted by aggressive merchandise pricing in our core merchandise business to drive sales and increase market share, particularly during the first four weeks of the fiscal quarter. To a lesser extent, we are also being adversely affected by lower year-over-year profits associated with our gasoline business.”

As a result, second quarter earnings are expected to be substantially below analysts’ consensus estimate of $0.70 a share. Costco’s second quarter ends Feb. 15 and it is scheduled to report results on March 4. The company said it would not provide earnings guidance for the remainder of its fiscal year do to economic uncertainties and unpredictable consumer behavior.

The news was announced before the market open and caused shares to open sharply lower at $42.67 from the prior day’s close of $46.12.

Costco currently operates 550 clubs, including 403 units in the United States.