Posted on: Thursday, March 3, 2005

Costco earnings up 35% with aid of big tax benefit

Associated Press

ISSAQUAH, Wash. — Costco Wholesale Corp. said yesterday that second-quarter earnings rose 35 percent, partly as a result of a big tax benefit, but shares fell after the company's results failed to meet Wall Street expectations.

The nation's largest members-only warehouse-club retailer said that income for the 12 weeks ended Feb. 13 rose to $305.5 million, or 62 cents a share, from $226.8 million, or 48 cents a share, in the year-ago quarter.

The fiscal second quarter results included a tax benefit of $52.1 million from the settlement of a dispute over the correct tax amount for operations in Canada. The company said the settlement is good through 2006, after which it will be renegotiated.

The quarter also included a noncash charge of $10 million resulting from a change in lease accounting. Many retailers and restaurant operators have taken similar charges recently, after some clarifications by the Securities and Exchange Commission. Costco won't restate earnings as a result of the change.

Without the one-time items, second-quarter earnings would have been $263.3 million, or 54 cents a share, a penny short of Wall Street expectations.

A Thomson First Call survey of 26 analysts projected earnings of 55 cents a share.

Costco shares fell $1.69, or 3.6 percent, to close at $45.02 on the Nasdaq Stock Market.