Costco posts profit growth as consumers become "more disciplined"

While a harsh economy carves away at the profits of many retailers, Costco Wholesale in Issaquah continues to post gains because of the bargains it offers on necessities like food, toilet paper and other sundries.

Costco's fourth-quarter profit rose 6.8 percent to $397.8 million, or 90 cents a share — and that was after two charges that shaved 7 cents from the per-share profit.

Revenue rose 12.8 percent to $23.1 billion.

In the coming year, Costco is "going to do better than other retailers, but it's going to be worse than we've seen from them in recent years," predicted Stephanie Hoff, senior retail analyst at Edward Jones in St. Louis.

"Electronics and apparel and things like that are going to be much harder to sell this holiday season," she said. She has a "hold" rating on Costco, whose shares fell 74 cents to $57.06 Wednesday.

Analysts polled by Thomson Reuters had predicted a fourth-quarter profit of 93 cents a share.

Already shoppers have slowed their purchases of big-ticket items such as furniture and jewelry, the warehouse-club operator said. It's also suffering from fluctuating gas prices and inflation on some products.

"Our core business is just fine, and one day we'll get off of this seesaw with gasoline and inflation craziness," said Chief Financial Officer Richard Galanti.

Costco officials said they tried not to pass higher costs on to consumers, a decision that appears to have paid off.

"They didn't hike their prices, which led to positive traffic in stores. The volumes went up and made up for shrinking margins," said Aravindh Vanchesan, a retail analyst in Toronto for the research and consulting firm Frost & Sullivan.

Key indicator

Costco said same-store sales, a key indicator of retailer performance, rose 9 percent during the quarter. That included 9 percent growth within the U.S. and 11 percent internationally. For the full fiscal year, same-store sales rose 8 percent, including a 6 percent jump in the U.S. and 15 percent internationally.

Galanti said Costco shoppers are shifting their spending habits but not abandoning ship.

"They are being a little bit more disciplined," he said. "Our savings are so extreme that you can't not come there. I'm biased, mind you."

Warehouse clubs, which offer low prices on a wide range of items and groceries in bulk, have fared better than other retailers as consumers cut back amid turmoil in the financial sector and rising prices for daily necessities.

Stifel Nicolaus & Co. analyst David Schick wrote in a research note that warehouse clubs such as Costco remain "one of the better-positioned sectors in retail. As the financial crisis continues to unfold, we are still measuring the potential impact to warehouse clubs."

Stifel maintained a "hold" rating on Costco.

Fiscal-year profit

For the fiscal year, Costco reported profit rose 18 percent to $1.28 billion, or $2.89 a share. Revenue for the year rose 13 percent to $72.5 billion.

Galanti said the company expects to earn 61 to 65 cents during the first quarter; Wall Street has been expecting about 64 cents. Costco is approaching fiscal 2009 "very conservatively," he said, expecting to earn $3 to $3.25 a share for the year, while Wall Street is looking for the high end of that range.

"We think whatever happens out there, we're well-positioned to do better than the average, and we'll see what happens," he said.

The Associated Press contributed to this article.

Melissa Allison: 206-464-3312 or mallison@seattletimes.com