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Costco Reports 30 Percent Jump in Net Profit (COST)

America’s largest warehouse club chain, Costco Wholesale Corp. (NASDAQ: COST) reported better-than-expected fiscal first quarter earnings thanks to soaring revenue from  membership fees and strong growth in same-store-sales; nevertheless, revenue fell short of Street’s estimate.

The company said that fiscal first quarter profit came at $416 million or 95 cents a share, compared to $320 million or 93 cents, in the year earlier quarter.

Sales during the period climbed 9.5 percent to $23.2 billion. Analysts polled by Thomson Reuters, on average, were expecting earnings of 93 cents a share on revenue of $23.7 billion.

Same-store-sales (including the impact of changes in fuel prices and currency fluctuation) rose 7 percent while after excluding the excluding the impact of changes in fuel prices and currency fluctuation, same-store-sales increased by 6 percent, in the fiscal first quarter.

Revenue from membership fees soared 14.3 percent to $511 million as the Company hiked its membership fees by 10 percent from November 1. Now members need to pay up to $110 in order to buy anything ranging from vegetable to musical instruments from its vast stores or through its website.

Thanks to membership fees, Costco is able to sell its merchandises at very thin margins without impacting its bottom-line.

Company’s operating margins also widened to 2.7% from 2.5% even after 9.5 percent increase in merchandise cost.

The Issaquah, Washington-based chain, which currently operates 621 warehouses, said that it plans to open a new warehouse in South Korea before the year-end.

At present, the Company operates 448 stores in the United States, including Puerto Rico, 85 Canada, 32 in Mexico and 23 in Great Britain.

In recent quarters, Costco has consistently topped Street’s expectations as more and more Americans, looking to get best bargains in the backdrop of macroeconomic uncertainty, flocked to its warehouse clubs for buying goods in bulk.

In addition, Costco’s gasoline prices are lower than local area pumps, resulting into higher traffic at its clubs.

Just last month, the Company announced a special dividend of $ 7 a share, payable this month. The special dividend will cost nearly $3 billion, which company said will be covered from the proceeds of debt offering estimated at $3.5 billion.


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