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Costco quarterly profit rises

Costco Wholesale Corp. Thursday posted a better-than-expected 29 percent increase in quarterly profit, sending its stock up 4 percent, thanks to strong spring sales and tighter cost controls.
/ Source: Reuters

Costco Wholesale Corp. Thursday posted a better-than-expected 29 percent increase in quarterly profit, sending its stock up 4 percent, thanks to strong spring sales and tighter cost controls.

Analysts have long criticized Costco for failing to turn its strong sales into profits, but in the latest quarter profits grew twice as fast as sales.

Costco, best known for its upscale merchandise including $100 bottles of wine and $10,000 diamond rings, is the largest player in the U.S. warehouse club segment that also includes Wal-Mart Stores Inc.’s Sam’s Club.

Analysts have favored Sam’s in recent quarters because rising labor and health-care costs have crimped Costco’s profits. J.P. Morgan analyst Shari Eberts said the latest quarter marked the first time since fiscal 2000 that Costco had managed to keep selling, general and administrative cost increases below sales growth.

Costco said it earned $198.7 million, or 42 cents a share, in the fiscal third quarter ended May 9, up from $153.8 million, or 33 cents a share, a year earlier.

Analysts, on average, expected earnings of 37 cents per share, according to Reuters Estimates.

Quarterly sales rose 14 percent to $10.67 billion, while sales at stores open at least a year — a key retail measure known as same-store sales, were up 11 percent.

Wall Street had widely expected the strong sales growth because the company has reported big monthly gains, but the wild card was how much profit Costco made from gasoline.

Costco sells gasoline at some of its U.S. warehouse clubs, and the low-priced stations tend to draw more customers when gasoline prices rise.

Analysts were awaiting Costco’s conference call later Thursday for details on how the recent record-high U.S. pump prices affected the retailer. Costco has struggled in the past to keep its profit margin intact when fuel prices rise.

Costco, based in Issaquah, Washington, operates 433 warehouse stores worldwide, including 320 in the United States and Puerto Rico.

The stock was up $1.78 at $39.22 on the Nasdaq Thursday morning.