Costco's 4Q Misses Amid Higher Costs

Costco Wholesale (NASDAQ:COST) reported Wednesday a 1.3% increase in its fourth-quarter profit on higher same-store sales, although results missed Wall Street expectations.

The wholesale club has recently benefited from an increase in store traffic, as cost-conscious shoppers look to save money by making bulk purchases. Costco’s gasoline pumps also drive customers to its clubs.

Costco, which operates 638 warehouses, said it plans to open 11 additional warehouses by the end of this year.

In the latest period, Costco’s profit rose to $617 million from $609 million in the year-ago period. On a per-share basis, earnings ticked a penny higher to $1.40.

Revenue edged up 0.8% to $32.49 billion.

Analysts were looking for per-share earnings of $1.46 and revenue of $32.82 billion.

The earnings miss was Costco’s first in two years. Following the report, analysts cited IT and healthcare as possible areas that drove costs higher in the fourth quarter, which had one week less than last year.

Total costs rose 0.8% to $31.5 billion, including a 1.8% rise in selling, general and administrative expenses. Merchandise costs increased 0.7%, and provision for income taxes fell 3.2%.

Fourth-quarter operating margin remained level at 2.9%.

Same-store sales jumped 5%, excluding currency fluctuations. In the U.S., same-store sales were up 5%, while international clubs saw 7% growth.

Revenue from membership fees climbed 3.2% to $716 million.

Sterne Agee analysts noted that Costco’s operating margin and September sales likely outpaced other retailers. Janney Capital Markets called sales strength in the U.S. “impressive” given retail concerns over the government shutdown.

Shares were trading 1.3% lower at $110.79 in pre-market trading. The stock is up 13.6% on the year.