Costco Wholesale Corp. reported a 16% jump in quarterly profit as the second-largest U.S. club store operator reaped stronger sales of fresh produce and other foods.

Costco’s profits rise 16% on stronger produce sales


Fresh food sales were up “a little over” 5% during the quarter ended Aug. 29, Costco’s chief financial officer Richard Galanti said during an Oct. 6 conference call that followed the release of the company’s fiscal 2010 fourth-quarter results.

“All fresh food subdepartments were pretty good,” Galanti said. “Fresh food has been an ongoing, continuing strength of ours.”

In fresh produce, prices were “slightly deflationary,” he said.

Fresh fruit, vegetable and meat sales boosted Costco’s sales much of the past year, reflecting the increasing popularity of club stores, which charge membership fees for access to discounted goods in bulk quantities. Costco’s fees begin at $50 a year.

Club stores, along with general merchandisers such as Wal-Mart Stores Inc., have expanded share in U.S. retail food at the expense of traditional supermarkets as consumers seek lower prices and access to nonfood items at the same locations they buy groceries.

During the recent quarter, Costco’s sales at U.S. stores open at least a year rose 3%, excluding gasoline, compared with the same period a year earlier, the Issaquah, Wash.-based company said today. In September, sales rose 2% excluding fuel, the 11th monthly increase over the past 12 months. Costco doesn’t provide sales information that excludes gasoline.

Costco expects to open more stores in coming years, adding locations at a pace that eventually may vault the company above Sam’s Clubs as the nation’s biggest club store operator.

During Costco’s fiscal year 2011, which began Aug. 30, the company expects to open about 31 new stores, including 16 in the U.S., Galanti said. Costco currently operates 417 stores in the U.S. and Puerto Rico and 79 in Canada.

Opening an average of 16-17 new stores a year in the U.S. over the next decade is “not implausible,” Galanti said. Longer term, Costco expects to have at least 550 stores to as many as 625, he said. “We feel there’s plenty of opportunities” for growth, Galanti said.

Sam’s Club, a unit of Wal-Mart, is the top U.S. club store operator by number of locations, with 596 at the end of 2009.

During the quarter, Costco’s net income rose to $432 million, or 97 cents a share, from $374 million, or 85 cents, a year earlier. Sales rose 7.6% to $24.1 billion. Per-share profit beat analysts’ expectation by about 2 cents, according to Thomson Reuters I/B/E/S.

Costco stock is up 7.7% this year, reaching a two-year closing high of $65.05 on Oct. 1.