Costco Wholesale Corporation net sales for the second quarter of fiscal 2007 increased to $14.80 billion from $13.79 billion during the second quarter of fiscal 2006. Comp sales increased 5% for the quarter.
In connection with recent changes to consumer electronics returns policy, the company undertook a more detailed analysis of returns than performed historically. Although the operational data is still preliminary and being refined, the information indicated a longer timeframe over which returns are received and a lower realization rate on returned items than were previously estimated. Accordingly, as part of the quarterly analysis of estimated reserve for sales returns, increased by $224.4 million the sales reserve balance and took a charge to income for the quarter amounting to approximately $48.1 million ($30.4 million after tax). Excluding the sales reserve increase, net sales for the second quarter were $15.03 billion, representing a 9% increase over the prior year.
Net income for the second quarter of fiscal 2007 was $249.5 million, or $.54 per diluted share, compared to $296.2 million, or $.62 per diluted share, during the second quarter of fiscal 2006. Included in this year's second quarter results are three non-recurring items: (i) the $48.1 million pre-tax charge reflecting the reduced gross margin on the revised sales return reserve (discussed above); (ii) a pre-tax charge of $46.4 million associated with reducing adverse income tax consequences arising from the review of stock options by a special committee of the Board of Directors (this is $23.6 million less than the estimated expected charge announced last quarter); and (iii) a $10.1 million pre-tax benefit primarily to merchandise costs for an excise tax refund on prior merchandise sales of phone cards. Excluding these one-time items, second quarter net income would have been $302.9 million, or $.66 per diluted share
