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Costco Delivers Warehouse-Sized Earnings Gain in Q2

Costco Wholesale Corporation’s stock price rose by more than 2 percent Thursday morning after the company announced that second quarter earnings surged by 37 percent in its most recent fiscal quarter.

Net sales for the quarter increased 4.4%, to $26.87 billion, from $25.76 billion last year, slightly missing Wall Street estimates. Comparable sales for the period increased by 4 percent in the U.S. and decreased by 2 percent internationally, resulting in a consolidated comparable store sales increase of 2 percent. In February, comps were up 1 percent overall (8 percent excluding the impact of gasoline prices) and traffic increased by 5 percent. Soft lines comps were in the mid-single-digits, with apparel and home goods the standout categories in the division.

In the quarter, membership fees rose by 5.8% to $582 million. The company’s global membership renewal rate was 88 percent, with the U.S. and Canada rate at an impressive 91 percent.

Merchandise margins expanded by 54 basis points, or a total of $262 million, to 11 percent.

Net income for the quarter was $598 million, or $1.35 per diluted share, compared to $463 million, or $1.05 per diluted share, in the prior year period. About ten cents per share of the earnings came from tax benefits. Excluding these benefits, earnings still beat the Wall Street consensus estimate of $1.18.

Net sales for the first half increased six percent, to $53.16 billion, from $50.22 billion last year. Comparable sales for the year-to-date period increased by 5 percent in the U.S. and decreased by 1 percent internationally, resulting in a consolidated comparable store sales increase of 3 percent. Excluding the negative impact from gasoline price deflation, comps increased by between 7 percent and 8 percent in both periods across both regional segments.

Net income for the first half was $1,094 million, or $2.47 per diluted share, compared to $888 million, or $2.01 per diluted share, last year.

Costco currently operates 671 warehouses, including 474 in the United States and Puerto Rico, 88 in Canada, 34 in Mexico, 26 in the United Kingdom, 20 in Japan, 11 in Korea, 10 in Taiwan, seven in Australia and one in Spain. Costco also operates electronic commerce web sites in the U.S., Canada, the United Kingdom and Mexico. The company expects to open 20 additional new locations in fiscal 2015, which ends in August.