Fresh Foods Gross Margins Rise at Costco

ELLIOT ZWIEBACH

ISSAQUAH, Wash. — Costco Wholesale Corp. here said yesterday that better operating procedures helped boost gross margins on fresh foods by approximately 0.5% during the fourth quarter, which ended Sept. 2, reversing a slight negative trend from earlier in the year. Net income for the 16-week quarter rose 4.7% to $372.4 million, compared with the 17-week fourth quarter a year ago, while sales jumped 3% to $20.1 billion and comparable warehouse sales increased 5%. For the 52-week year (compared with the prior year’s 53 weeks), net income fell 1.9% to $1.08 billion, while sales rose 7% to $63.1 billion and comps were up 6%. Richard Galanti, executive vice president and chief financial officer, told analysts during a conference call that overall gross margins rose 38 basis points during the quarter to 10.74%. The improvement in fresh foods margin did not result from any changes in pricing levels, he pointed out. “If you look back at the last couple of quarters, there were some issues involving higher spoilage where a little too much [inventory] was brought in,” he explained. “When sales are just even by a couple of percentage points, you can get some extra spoilage, but we’ve been working on that, and we’ve improved some of the components — not the pricing but the components — of the margin like spoilage.”

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