NEW YORK — Costco Wholesale Corp., which had been one of the few bright spots in retailing, said Wednesday that its earnings will miss Wall Street expectations as it struggles with higher energy costs that are crimping its bottom line.
Shares in the nation’s No. 1 warehouse club operator plummeted more than 12 percent in morning trading Wednesday.
The outlook reflects weakness in the Issaquah-based company’s gasoline operations and slightly-lower-than-planned merchandise profits as Costco holds back on price increases to drive sales. Chief Financial Officer Richard Galanti said in a statement that the lower outlook came “largely from inflation, particularly as to energy costs.”
Amid those energy prices, Costco and other low-price retailers face a dilemma of whether to raise prices on merchandise — which could cost them customers — or hold down prices, which hurt margins, said Ken Perkins, president of RetailMetrics LLC, a research company in Swampscott, Mass.
“Costco is clearly feeling the pain of rising energy costs, but how much can you pass on to the consumer?” Perkins said.
The company had been expected to earn $1 per share in profit for the fourth quarter ending Aug. 31, according to analysts polled by Thomson Financial. Costco said it now expects profits “well below” that. Analysts expect full-year earnings of $2.99 per share.
Galanti also said the firm felt a greater-than-expected effect from its inventory method that assumes the most recent inventory purchases or goods manufactured are sold first. During times of rising prices, that results in a charge that eliminates inflationary profits from net income.
Shares fell $8.22 to $63.78, the midpoint of its 52-week range of $56.09 and 75.23.
Costco, which sells items in bulk, has attracted crowds of shoppers as they turn to cheaper options and less expensive gasoline amid the sluggish economy.
Soaring gas prices have helped inflate Costco’s overall sales, but dragged down profit margins because gas is a low-profit business, according to Perkins. In June, Costco reported a 9 percent gain in same-store sales, or sales at stores opened at least a year, but excluding gas sales, that increase would have been 5 percent.
Along with other warehouse club operators, Costco also is suffering now because it typically gets its gas deliveries on a daily basis — in comparison with traditional gas station operators who can get better deals since they buy in advance.
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