NEW YORK — Shares of Costco Wholesale Corp. took a double-digit pounding Tuesday after gross margin pressure and higher costs led it to lower its fourth-quarter and full-year earnings forecasts, despite strong net and comparable-store sales.
This story first appeared in the August 6, 2003 issue of WWD. Subscribe Today.
For the three months ending Aug. 31, the Issaquah, Wash.-based warehouse retail chain now expects to report fourth-quarter earnings per share of 46 to 48 cents. Previously, Costco had anticipated earnings of 54 to 56 cents. As a result, full-year earnings are now expected to be $1.48 to $1.50 versus the earlier guidance of $1.56 to $1.58. Last year, the firm recorded profits of 52 cents and $1.48 for the fourth quarter and full year, respectively.
By the time Wall Street digested the news, shares had fallen $6.90, or 18.7 percent, to land at $30.06 in Nasdaq trading Tuesday. Earlier in the day, they had slumped as low as $29.97.
Although consolidated same-store sales grew 8 percent for the four weeks ended Aug. 3, and net sales increased 12.5 percent to $3.34 billion from $2.97 billion a year ago, Costco said operating results for the first half of the fourth quarter came in below plan.
“Despite satisfactory sales results,” said chief financial officer Richard Galanti in a statement, “a combination of lower than planned gross margins, continuing escalation of costs associated with employee health care and workers’ compensation expenses, and increased initiatives to improve customer service and speed checkouts at the front end all led to reduced expectations for our fiscal fourth-quarter results.”
Net sales for the first 48 weeks of the fiscal year also improved, growing 9.5 percent to $38.29 billion from $34.97 billion a year ago.
Costco added that preliminary expectations for the upcoming fiscal year are for earnings and sales to increase 8 to 10 percent.