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Costco shopping carts are shown at the entrance of Costco in Mountain View, Calif., Wednesday, May 28, 2008. (Paul Sakuma/AP)
Costco shopping carts are shown at the entrance of Costco in Mountain View, Calif., Wednesday, May 28, 2008. (Paul Sakuma/AP)

Costco profit tops expectations Add to ...

Costco Wholesale Corp. posted higher quarterly profit on Thursday, helped by an 8 per cent increase in net sales and a lower tax rate, sparking a jump in shares.

The largest warehouse club operator earned $386-million (U.S.), or 88 cents a share, in the fiscal third quarter ended May 6, up from $324-million, or 73 cents a share, a year ago.

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Analysts, on average, looked for earnings of 87 cents per share, according to Thomson Reuters I/B/E/S. Several analysts said the results were helped by a lower-than-expected tax rate and higher-than-estimated interest income.

Net sales rose 8 per cent to $21.85-billion. Total revenue, including membership fees, increased 8.2 per cent to $22.32-billion. Membership fee revenue rose 9.2 per cent, due in part to the 10 per cent fee increase for most U.S. and Canadian members.

Same-store sales rose 5 per cent.

It had reported March and April same-store sales that missed analysts’ estimates.

Costco sells everything from potato chips to outdoor plants. Its members pay annual fees to shop at hundreds of large stores and online.

Costco “continues to execute as well as can be expected with solid traffic and membership growth suggesting continued market share gains,” said Janney Capital Markets analyst David Strasser. He maintained a “buy” rating on the shares.

Costco is willing to take a hit on margins to keep prices low so shoppers visit stores more often. Costco typically prices everyday goods such as bananas below supermarket prices, hoping shoppers will stock up on other goods as well.

Some analysts are concerned Costco’s pricing weighs too heavily on margins.

“We believe that product margins declined for a third consecutive quarter, although at a potentially moderate rate,” said Bernstein analyst Colin McGranahan. He rates the stock as “underperform.”

Costco competes against Wal-Mart Stores Inc’s Sam’s Club and privately held BJ’s Wholesale.

Last week, Wal-Mart said Sam’s Club’s same-store sales rose 5.3 per cent in its latest quarter, excluding gasoline. Sam’s Club total sales, including gasoline, rose 7.9 per cent to $13.85-billion.

Costco, which has 602 stores, plans to open up to another six locations before its fiscal year ends in early September.

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