Costco Reports Strong Sales, but Tax Charge Squeezes Profit

By Sarah Nassauer and Micah Maidenberg 

Costco Wholesale Corp. said Thursday sales rose in the latest quarter, as the warehouse retailer works to offset the rising costs of tariffs.

Comparable sales, or those from Costco stores open for more than a year as well as online sales, increased 5% in the quarter that ended Sept. 1. Online sales increased 22% in the period.

The company has been aided by strong consumer spending, which has helped boost the U.S. economy for much of the year amid worries about slowing global growth and uncertainty related to tariffs. But the economy is growing at a slower pace than last year, and consumer spending slowed slightly in August.

"We are still seeing good growth," said Richard Galanti, CFO of the retailer, whose members skew higher income than many big-box competitors. Costco sold a $222,000 diamond ring during the quarter, he said.

Costco is working to speed shipments of products before tariffs take effect or before duties are set to rise, said Mr. Galanti on a conference call. "We've gone to pretty much every supplier on every item to see what we can do" to reduce costs, and in some cases Costco has cut orders, he said.

The Trump administration has imposed tariffs on the majority of goods imported from China, with some to take effect later in the year on consumer goods including toys and apparel. On Wednesday, the administration said it would impose new tariffs on some goods from the European Union.

Profit during the quarter rose to almost $1.10 billion, or $2.47 a share, from $1.04 billion, or $2.36 a share a year earlier. That includes a $123 million charge related to taxes.

Last week Costco learned it owes more taxes on a product sold between 2009 and 2016, said Mr. Galanti. An investor relations executive declined to specify the product, but said the charge involved a product subject to additional taxes like tobacco or alcohol. Costco is filing a protest to the additional charge, but set aside a reserve for the payment in the quarter. Without the charge, profit would have been $1.19 billion, or $2.69 a share, he said.

Costco said it generated about $47.5 billion in net sales and membership fees in its fiscal fourth quarter, up from $44.41 billion a year earlier.

Along with rivals Walmart Inc. and Target Corp., Costco has shown it can draw in customers and notch higher sales in a shifting retail market. Investors have responded by bidding up shares in the Issaquah, Wash.-based company 42% so far this year. Shares of Costco fell 1.6% in postmarket trading Thursday.

Write to Sarah Nassauer at [e-mail] and Micah Maidenberg at [e-mail]

(END) Dow Jones Newswires

October 03, 2019 19:06 ET (23:06 GMT)

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