Costco Posts 7% Increase in Same-Store Results for February on a 9% Raise in Sales

Costco Wholesale Corporation announced its operating results for the second quarter (12 weeks) and first half (24 weeks) of fiscal 2005, both ended February 13, 2005.
Net sales for the second quarter of fiscal 2005 increased 10% to $12.41 billion from $11.33 billion during the second quarter of fiscal 2004. Net income for the second quarter of fiscal 2005, which included certain one-time items, increased 35% to $305.5 million, or 62 cents per diluted share, compared to $226.8 million, or 48 cents per diluted share, during the second quarter of fiscal 2004.

Net income during the quarter was positively impacted by a one-time $52.1 million income tax benefit (covering the years 1996-2003) resulting primarily from the settlement of a transfer pricing dispute between the United States and Canada. Additionally, in response to the Securities and Exchange Commission’s recent letter concerning accounting standards related to leases, the Company adjusted its method of accounting for leases (entered into over the past twenty years), primarily related to ground leases at certain owned warehouse locations that did not require rental payments during the period of construction. A cumulative pre-tax, non-cash charge of $16.0 million was recorded as a preopening expense in the second quarter of fiscal 2005. Prior periods financial results will not be restated due to the immateriality of this amount to the consolidated statements of income and consolidated balance sheets. Without the impact of the $52.1 million income tax benefit and the $16.0 million ($10.0 million after-tax) cumulative charge to preopening expenses, net income for the second quarter of fiscal 2005 would have been $263.3 million or 54 cents per share, reflecting a 16% increase in net income over the second quarter of the prior year and an income tax rate for the quarter of 37.54%.

Net sales for the first half of fiscal 2005 increased 10% to $23.75 billion from $21.64 billion during the first half of fiscal 2004. Net income for the first half of fiscal 2005 increased 29% to $498.6 million, or $1.02 per diluted share, compared to net income for the first half of fiscal 2004 of $387.0 million, or 82 cents per diluted share. Without the impact of the second quarter tax benefit and the cumulative charge to preopening expenses (above), net income for the first half of fiscal 2005 would have been $456.5 million, or 94 cents per diluted share, reflecting an 18% increase over the first half of the prior year.

Comparable sales for the fiscal second quarter (12 weeks) and fiscal first half (24 weeks) of fiscal 2005, both ended February 13, 2005, were as follows:

                                         12 Weeks         24 Weeks
                                      ---------------  ---------------
US                                          6%               6%
International                               12%              10%

Total Company                               7%               7%
                                      ===============  ===============

Reported net sales were reduced by the implementation of Emerging Issues Task Force Issue No. 03-10 (“EITF 03-10”), “Application of Issue No. 02-16 by Resellers to Sales Incentives Offered to Consumers by Manufacturers,” which was effective at the beginning of the Company’s fiscal 2004 third quarter on February 16, 2004. Had sales for the 12-week and 24-week periods last year been reported under EITF 03-10, total company reported net sales increases would have been 11% and 11%, respectively, and total company comparable sales increases would have been 8% and 8%, respectively.

The company today also reported net sales of $3.78 billion for the 4-week retail reporting month of February, the four weeks ended February 27, 2005, an increase of 9% from $3.46 billion in the same four-week period of the prior fiscal year. For the 6-month retail reporting period of September through February, the twenty-six weeks ended February 27, 2005, which includes the first two weeks of the company’s fiscal third quarter, the Company reported net sales of $25.62 billion, an increase of 10% from $23.38 billion during the comparable period of the prior fiscal year.

Comparable sales for the 4-week retail-reporting month of February and the 26-week retail-reporting period of September through February are as follows:

                                               4              26
                                              Weeks          Weeks
                                         --------------  -------------
US                                             5%             6%
International                                 14%             10%

Total Company                                  7%             7%
                                         ==============  =============

Had sales for the 4-week and 26-week periods last year been reported under EITF 03-10, total company reported net sales increases would have been 10% and 10%, respectively, and total Company comparable sales increases would have been 7% and 8%, respectively.

Costco currently operates 451 warehouses, including 333 in the United States, 64 in Canada, 15 in the United Kingdom, five in Korea, four in Taiwan, five in Japan and 25 in Mexico. The company also operates Costco Online, a U.S. electronic commerce web site, at www.costco.com; and earlier this week launched its Canada electronic commerce website, at www.costco.ca. The company plans to open 14 to 16 additional new warehouses (including the relocation of three to four warehouses to larger and better-located facilities) prior to the end of its 2005 fiscal year end, on August 28, 2005.