Costco reports strong Q3 results, says inflation is back

As everyone from Starbucks to McDonald's raises prices to keep up with higher food costs, Costco Wholesale said it is seeing inflationary pressures as well.

"Inflation is clearly back," Chief Financial Officer Richard Galanti told analysts during a conference call Wednesday after Costco reported a 6 percent rise in its third-quarter profit to $324 million.

Sales rose 16 percent to $20.6 billion, including membership fees of $435 million.

The Issaquah-based company took a $49 million charge to revalue its inventory, which is worth about $4 billion in the United States alone. About $11 million of that charge came from gasoline-price inflation, Galanti said.

"My guess is it's impacting us a little sooner, because we turn our inventory faster," he said.

He listed examples of items that are up, including dog food (3.5 percent), detergents (10 percent), water (10 percent), plastic plates and cups (8 to 9 percent) and trash bags (4 percent).

"It's going to continue; at least it's continuing so far this fiscal quarter," Galanti said. "When will it subside? Hopefully soon."

Costco will raise its prices on some of the items beginning in June, he said.

When inflation picked up in 2008, Costco was among the first to take a charge for inventory, which is necessary because of the accounting system it uses. Inflation quickly subsided in late 2008 because of the economy's dire condition.

Now it is back, and on Wednesday Starbucks raised the price of packaged coffee sold in its cafes by an average 17 percent. It had already raised prices 12 percent on packaged coffee sold by grocery stores.

That followed J.M. Smucker's announcement Tuesday that it will raise Folgers coffee prices by 11 percent.

McDonald's raised its U.S. menu prices by 1 percent in March and said more increases are on the way.

Although Costco's sales were up, its electronics department is lagging.

People bought fewer computers there in recent months, partly because Costco has stopped carrying Apple products and partly because some customers are waiting for new processors to appear with new computer chips from Intel and AMD, Galanti said.

TV sales are flat, and the average price of the TVs people are buying is down, he said.

Costco's profit of 73 cents a share missed analysts' expectations by 4 cents. Its stock fell $1.03 Wednesday to $80.32 a share. It has traded as high as $83.95 a share during the last year.

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