Costco misses forecast over gas prices

Costco on Wednesday reported a third-quarter profit a penny shy of Wall Street forecasts, as rising gas prices continued to pinch margins.

The wholesale-club retailer based in Issaquah said its third-quarter profit was $235.6 million, or 49 cents a share, a 12.3 percent gain from a year ago. Sales rose 10.6 percent to $13.3 billion.

Analysts polled by Thomson Financial had forecast a 50-cent per-share profit on sales of $13.12 billion. Higher gas prices lowered its earnings by 2 cents for the quarter, the company said.

To lure customers into its warehouse clubs, Costco runs gas stations at 241 of its warehouses, aiming to charge the lowest price for gas within a five-mile radius.

But the retail giant, known for deeply discounting items and making a profit by selling massive volumes, has become a victim of its own success.

The company turns its gas supply so rapidly — its average station uses its entire inventory in a day-and-a-half versus seven to 10 days for a competitor — that it's more vulnerable to a spike in prices.

When Costco buys fuel at a higher price, it still must compete with stations selling fuel purchased earlier at a lower price. Since Costco aims to charge prices lower than rivals, it eats the difference to remain competitive.

Costco Chief Financial Officer Richard Galanti told analysts that gross margins "will continue to be a little down" due to higher gas prices, but the company thinks that gas stations remain an important way to bring in customers.

Gas prices hit record highs over the weekend in the Seattle metro area.

The average price for a gallon of self-serve regular unleaded in the United States on Wednesday was $2.848, according to AAA.

Along the Seattle, Bellevue and Everett corridor, the figure reached $3.23 — slightly lower than the record price of $3.237, reached on Saturday.

This isn't the first time Costco's profit was damped by rising gas prices.

Costco first warned analysts in April 2005 that its financial results would fall short of Wall Street estimates due to higher gas prices.

Costco's shares closed down 63 cents to $52.93 on Wednesday.

Monica Soto Ouchi: 206-515-5632 or msoto@seattletimes.com