Costco Earnings Dip on One-Time Charges

ISSAQUAH, Wash. -- Costco Wholesale Corp. here said earnings declined for the second quarter and first half ended Feb. 18 as a result of three non-recurring items, while net sales and same-store sales rose. Net income fell 15.8% to $249.5 million for the 12-week quarter and 5% to $486.4 million for the first half, which the company said was due to three one-time items: a charge reflecting reduced gross margins on its revised sales return reserve; a charge associated with reducing adverse income tax consequences arising from a review of stock options; and a benefit primarily to merchandise costs from an excise tax refund on prior merchandise sales of phone cards. Excluding those items, the company said net income for the quarter would have been $302.9 million, up 2.3%. Sales rose 7.3% to $14.8 billion for the quarter and 8.3% to $28.7 billion for the half. Results for the quarter were impacted by an increase of $224.6 million in the company's sales reserve balance after it decided to change its returns policy on consumer electronics from an unlimited basis to 90 days. Comps were up 5% for the quarter and the half. -- Elliot Zwiebach