COSTCO RAMPS UP STORE EXPANSION

Mark Hamstra

ISSAQUAH, Wash. -- Costco Wholesale Corp. here said last week it planned to ramp up expansion in 2006 with a target of up to 30 new warehouse clubs.

After falling short of projections for new-store openings in fiscal 2005, which ended Aug. 28, by opening only 16 new locations, Costco told analysts it was optimistic about reaching its expansion goals for the current fiscal year.

"We're running on all cylinders right now," said Richard Galanti, executive vice president and chief financial officer, in a conference call discussing year-end results.

The company posted comparable-store sales of 7% for both the fourth quarter and year, helping drive an 18% increase in net income for both periods.

Galanti acknowledged that the company has previously missed its expansion targets, but said the conditions were right this time around, especially given that stores which had been delayed in 2005 will carry over into 2006. About 85% to 90% of the increase in square footage will occur in existing markets, he said. Capital expenditures are projected to be between $1.2 billion and $1.4 billion.

"We're pushing ourselves to get as many open as possible," he said, noting that the planned openings for 2006 include more "done deals" and are more heavily weighted toward the beginning of the year than they have been in the past.

In terms of the company's performance, Galanti said the chain's margins were negatively impacted by increased sales of gasoline, which generate lower profits than other product categories. Sales of food and sundries were strong in the fourth quarter and year, he said, and were even stronger in September, when the company posted an 11% comp-store sales gain for the first month of fiscal 2006.

Net income totaled $354.7 million for the 16-week fourth quarter and $1.06 billion for the year. The 18% earnings growth was positively impacted by several non-recurring events, including tax benefits and other gains.

Sales for the quarter were up 10%, to $16.36 billion, and also rose 10% for the year, to $51.86 billion.

4th-QUARTER RESULTS

Qtr Ended 8/29/05; 8/29/04

Sales $16.36 billion; $14.83 billion

Change 10%

Comp-store 7%

Net income $354.7 million; $296.8 million

Change 18%

Inc/Share 73 cents; 62 cents

Year 2005; 2004

Sales $51.86 billion; $47.15 billion

Change 10%

Comp-store 7%

Net Income $1.06 billion; $882.4 million

Change 18%

Inc/share $2.18; $1.85