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Original Source: FD (FAIR DISCLOSURE) WIRE
. Richard Galanti, Costco Wholesale Corporation, CFO, EVP, and Director
For 4Q04, the 16-week period, the Co. came in at $0.62 a share, up $0.11 a share from reported earnings of $0.51 a share during 4Q03. Sales for the five weeks of September retail period were $4.53b, up 11% vs. $4.07b last year, and up 8% on a comparable basis. All of the income statement metrics, membership fees, GM, and SG&A trended in a positive direction in terms of both the QoverQ and the YoverY comparisons. Q&A Focus: SAM's, cash flow, CapEx, share buybacks, inflation, GM, and guidance.
A. Key Data From Call 1. 4Q04 sales = $14.8b. 2. 4Q04 cash and equivalents = $3.129b. 3. 4Q04 inventory = $3.644b. 4. FY04 CapEx = $702m. 5. 4Q04 reported membership fees = $306.4m. 6. 4Q04 operating income = $91.3m.
S1. 4Q04 & Full Year Results (R.G.) 1. 16-Week 4Q04 Operating Results:
1. For 4Q04, the Co. came in at $0.62 a share, up $0.11 a share
from last year's reported earnings of $0.51 a share. 2. In terms of dollars, net income increased $57m or 24% from $239m last year to $296.8m this year. 1. These results were well above the $0.56-0.57 EPS guidance provided in May on 3Q04 conference call, and $0.04 above current First Call consensus estimate of $0.58.
3. All of the income statement metrics, membership fees, GM and
SG&A trended in a positive direction in terms of both the
QoverQ and the YoverY comparisons. 4. For the FY, the Co. came in at $1.85 a share, up $0.32 or 21% vs. last year's EPS of $1.53 a share, and again up $0.04 a share vs. First Call.
2. Comps: 1. As previously reported, Co.'s 16-week comp sales figures showed an increase of 8%. 1. That's 9% on an apples-to-apples basis with regard to the EITF 03-10 accounting issue this year.
2. For the FY, a reported increase of 10%, or on an apples-to-apples basis, 11% adjusted for the impact of the EITF 03-10. 3. Comps for the five-week reporting month of September: 1. These trended back up from August's 4% reported comp figure to reported 8% increase for September, excluding the impact of EITF the 8% reported would have been 9%. 3. Opening Plans: 1. The Co. opened a total of 20 net new locations during FY04, which ended this past Aug. 29. 1. 18 new in the US. 2. Two in Canada. 3. These 20 are consolidated into the Co.'s operating results, as well in Mexico, which was accounted on an equity basis, the Co. opened three additional warehouses in this past FY. 2. The 20 net new warehouses in the consolidated figures, three quarters of these 20 opened in existing markets vs. new markets. 1. This is a continuing change in mix from '01 and '02 when three quarters of those 61 aggregate openings were in new markets. 4. Sales: 1. Sales for 4Q04 were $14.8b, up 11% in total sales from 4Q03 sales of $13.4b. 2. For 4Q04, 8% reported comp sales results were a combination of
an avg. transaction increase of about 6% for the qtr., of
which about 1% of that was FX, and an avg. frequency increase
of about 2% up from the qtr. 3. Co.'s avg. sales per warehouse for all warehouses, recalling the annual report of FY03, the avg. Co.-wide warehouse generated $105m in sales, which was on a 5% comp from the prior year. 1. During '03, it was $112m for US alone. 2. The Co. enjoyed a 10% comp this past year.
4. Co.-wide was $115m in avg. Co.-wide location, and $121m for US alone during FY04. 5. September Sales Results: 1. Sales for the five weeks of September retail period were $4.53b, up 11% vs. $4.07b last year, and up 8% on a comparable basis.
2. September's 8% reported comp was pretty much evenly split
between avg. transaction which was up a little more than 4%
and avg. frequency which was just a shapes under 4%. 3. Sales by Geography: 1. The established longer term US regions like the West Coast and parts of the Atlantic, Mid-Atlantic and Northeast, were up in 5-7% range, about 6% overall. 2. The newer regions, which includes parts of the Southeast as well as Texas and the Midwest were up in the mid-to-high teens, Texas actually was in the low 20s. 1. Overall that would generate 8% for the US. 3. Canada expressed in US dollars was 6%, but during this past year it remained relatively flat. 1. In 4Q03, it was down 1% and September was flat in local
currency. 4. Other International, given the weak dollar, the 8% local increase in comps and local currency for other International
during September represented 16% when converted into US dollars.
5. In total, an 8% reported comp for the Co. for the five weeks
of September. 4. Merchandising Categories: 1. Food and sundries, which was 8% in 4Q04, was 7% in September. 2. Hardlines, which was 5% in 4Q04, was up to 7% in September. 3. Softlines, which was flat in 4Q04 (16-week), was up 2%. 4. Fresh foods continued strong, up 11% in 4Q04 and 13% in September. 5. Ancillary businesses, which were up 29% in 4Q04, although parenthetically 18% up without gasoline given the high inflation YoverY in the qtr., in the five weeks of September ancillary was 15% both with and without gas.
5. Components of September's 8% Comp Sales Increase: 1. Food & Sundry (7% comp): 1. Tobacco, which is about 7% of total business, and close to 15% of the food and sundry business was down about 1%, were up against the price increase a year earlier. 2. Strength was in sundries. 3. Hardlines (7% comp): 1. Majors was the strongest subcategory, with toys and seasonal being slightly negative in terms of comp. 4. Softlines (2% comp): 1. Pretty mixed across the board. 2. Housewares, domestics, home furnishings, jewelry were the stronger subcategories, offset by the weaker ones which included media, and photo camera flat to down slightly and
apparel. 5. Fresh Foods: 1. Continues to be strong for the Co., 13% comp, and a frequency driver in its locations. 6. Ancillary Businesses: 1. As usual strong, again looking at it without the inflation of gas, 18% in 4Q04, and up 15% without gas in September.
S2. Income Statement (R.G.) 1. Membership Fees: 1. In 4Q04, reported membership fees were $306.4m or 2.07% of sales, up 4 BP and up $33m from a year ago of $272m. 2. Topline sales growth of about 11% and a 12% increase in membership fees. 3. In terms of membership, COST continues to benefit from strong renewal rates and increasing penetration of its $100 per year executive membership, which included the rollout of that program in Canada at the beginning of FY04. 4. In terms of members at FY end, the Co. had 15.0m Gold Star Members, 4.8m primary Business Members, 3.6m Business Add-ons, for a total of 23.4m members vs. a year earlier of 22.6m, or up about 5%. 1. The free spouse cards of 42.4m people at FY end. 5. At Aug. 29 FY end, paid executive members totaled just under 3.3m, an increase of a little over 300,000 members or up 10% since 3Q04 end, and that …