US: Inflation hits Costco profits

By: just-food.com | 23 July 2008

US warehouse club retailer Costco has warned that profits are likely to come in "well below" market expectations due to surging energy prices and rising costs.

In a statement released today (23 July), Costco said that profits at its forecourt business had been hit by selling prices that were below increased costs, a strategy that CFO Richard Galanti said was designed to retain customers.

"Factors negatively affecting our fourth-quarter earnings outlook arise largely from inflation, particularly as to energy," Galanti said.

However, while Costco's fuel business is under pressure, comparable sales "remain strong relative to other retailers, and we believe our growth outlook remains positive", Galanti added.

Fourth-quarter earnings per share is expected to miss the US$1 estimate, Costco said.

Costco also said that it plans to buy back $1bn worth of shares in addition to the $5.8bn buyback previously authorised.

The profit warning follows similar moves by fellow US retailers Supervalu and Safeway, which both said earnings are unlikely to reach earlier predictions.

Sectors: Retail

Companies: Supervalu