Costco Wholesale Corp. said Wednesday it expects fourth-quarter profit to be below analysts’ estimates, as sales on items like jewelry and furniture slowed and the company struggled with higher gas prices. The warning sent Costco shares down more than 4 percent.
The Issaquah-based wholesale club said it expects to earn between 68 cents and 71 cents per share for its quarter ending Sept. 3. The 17-week period will include a one-time tax charge of about 3 cents per share.
Without the charge, Costco said it expects to earn between 71 cents and 74 cents per share. Analysts polled by Thomson Financial had been expecting earnings of 77 cents per share, on average.
Earnings for its full fiscal year, which will be 53 weeks, are now expected to range between $2.23 and $2.26 per share, while analysts had been expecting a yearly profit of $2.33 per share.
Costco had previously said that Wall Street's forecast was at the high end of its expectations, and the company had also warned in that it might be hard to keep profits on gasoline sales up. In a conference call Wednesday with analysts, the company said gas sales were a factor in the reduced forecast but noted that it wasn't the only issue.
Costco Chief Executive Jim Sinegal said customers also appeared to be wary of buying discretionary items such as furniture and jewelry, perhaps in part because of the pain they are feeling when they go to the pump. The company was forced to reduce costs on some of those big-ticket items, pinching its margins.
Costco also is struggling with the costs associated with people returning big ticket electronic items such as high-end televisions.
Still, Sinegal said other areas, such as toy sales, were doing well.
"It's a mixed bag," he said.
Chief Financial Officer Richard Galanti said the company also continues to face tough competition from other discounters, but he noted that that also wasn't a primary factor in the lowered expectations.
The company said it "remains positive" in its outlook for its 2007 fiscal year and beyond, and expects to open at least 35 new locations in the coming year.
Analyst Bob Toomey with E.K. Riley Advisors blamed the reduced expectations on the economy.
"I think it's just an adjustment to slower consumer spending. I don't think it's any problem with Coscto's execution or their model. It's just the economy, in my view," he said.
He also said Costco may have wanted to be conservative in its guidance.
"From time to time they like to make sure expectations don't get too exuberant," he said. "Part of it is just them being conservative."
Costco also noted that sales in U.S. stores open at least one year grew 5 percent for the four weeks ended Aug. 27, while jumping 16 percent internationally. Total same-store sales were up 7 percent for the four-week period, as compared to a year earlier.
Net sales for the month grew 11 percent to $4.55 billion from $4.08 billion a year ago.
For the 52 weeks ended Aug. 27, U.S. same-store sales grew 7 percent, international same-store sales were up 11 percent and total same-store sales climbed 8 percent. Net sales for the period rose 11 percent to $57.78 billion from $51.86 billion in the comparable period last year.