Quick Stats

Quick Stats

    You are here

    Fresh Food, Computers Boost Costco Q1 Profit 10%

    ISSAQUAH, Wash. - Costco Wholesale Corp. here said yesterday that increased demand for fresh food and computers drove a 10 percent increase in its fiscal Q1 profits, to $237 million, or 51 cents per share. The warehouse club retailer's stock enjoyed a 1.83 percent boost by day's end.

    ISSAQUAH, Wash. - Costco Wholesale Corp. here said yesterday that increased demand for fresh food and computers drove a 10 percent increase in its fiscal Q1 profits, to $237 million, or 51 cents per share. The warehouse club retailer's stock enjoyed a 1.83 percent boost by day's end.

    Net sales increased 9 percent to $13.85 billion, up from $12.67 billion last year, while comps rose 4 percent in the quarter ended November 26.

    In connection with the review of stock options announced by Costco on October 12 and guidance issued by the IRS on November 30, the chain said the compensation committee of its board of directors approved a program intended to protect more than 1,000 employees who are United States taxpayers from certain adverse tax consequences.

    "We do not intend for our options-holding employees to be penalized for historical issues associated with some of our stock option grants," said Jim Sinegal, president and c.e.o. "This program is consistent with our corporate value of taking care of our employees."

    The program will increase exercise prices on certain stock options granted from 2000 to 2003, while the company makes payments to employees to reduce adverse income tax consequences from their options having been granted originally at prices lower than the revised prices.

    Costco is also examining the availability of similar alternatives for employees outside the United States. In total, it estimates that it will record a non-recurring, pretax charge to earnings of approximately $70 million (approximately $45 million after-tax) in fiscal Q2, the 12 weeks ending February 18, 2007.

    The ultimate amount of that charge will depend in part upon alternatives available in other countries, which are currently under review and which may affect options granted from 1996 to 2003. Over the next few years, Costco expects to recoup $25 million in proceeds, not subject to income taxes, from these increases in option prices; but the increased proceeds would not flow through the income statement. Thus, the real economic consequences of a $45 million after-tax charge would be significantly lower than the income statement consequences.

    Costco operates 504 warehouses, including 371 in the United States and Puerto Rico, 70 in Canada, 19 in the United Kingdom, five in Korea, four in Taiwan, five in Japan and 30 in Mexico.

    Related Content

    Related Content