Costco Wholesale Management Discusses Q1 2013 Results - Earnings Call Transcript
December 12, 2012 2:20 PM ET
Costco Wholesale (COST)
Q1 2013 Earnings Call
December 12, 2012 10:00 am ET
Richard A. Galanti - Chief Financial Officer, Executive Vice President and Director
John Heinbockel - Guggenheim Securities, LLC, Research Division
Mark Wiltamuth - Morgan Stanley, Research Division
Gregory S. Melich - ISI Group Inc., Research Division
Matthew D. O'Connor - Deutsche Bank AG
Colin McGranahan - Sanford C. Bernstein & Co., LLC., Research Division
Karen F. Short - BMO Capital Markets U.S.
Mark R. Miller - William Blair & Company L.L.C., Research Division
Daniel T. Binder - Jefferies & Company, Inc., Research Division
Deborah L. Weinswig - Citigroup Inc, Research Division
Good morning. My name is Felicia, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter Fiscal Year 2013 Operating Results Conference Call. [Operator Instructions] After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you, Mr. Galanti, you may begin your conference.
Richard A. Galanti
Thank you, Felicia. Good morning. Today, of course, is our first quarter earnings report for the 12 weeks ended November 25. As with every conference call, I'll start by stating that these discussions we're having will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and that these statements involve risks and uncertainties that may cause actual events, results and/or performance to differ materially from those indicated by such statements. The risks and uncertainties include, but are not limited to, those outlined in today's call, as well as other risks identified from time to time in the company's public statements and reports filed with the SEC.
To begin with our 12-week first quarter operating results for the quarter. Our reported earnings per share came in at $0.95 compared to last year's first quarter of $0.73. As was noted in this morning's release, there were 2 onetime items that hit last year's Q1 results. The first of these was the settlement of an income tax audit at Costco Mexico last year in the first quarter. During that quarter, Costco Mexico recorded an after-tax charge of $24 million. The impact to Costco's net income, as a then 50% owner of Costco Mexico, was $12 million or $0.03 a share.
The second item that hit last year's earnings results was a $17 million or $0.04 per share charge to SG&A line for our contributions to the Washington State I-1183 Liquor Initiative. Excluding these 2 onetime items from last year's results, last year $0.73 reported figure would have been $0.79, making this year's $0.95 figure a 20% year-over-year increase. In terms of sales for the first quarter, our 12-week reported comparable sales figures in Q1 showed a 7% increase, 7% in the U.S. and reported; and 9%, internationally.
Excluding gas price inflation and the impact of FX, the 7% U.S. comp reported number would have been 6%. The 9% reported international comp would have been 7%, and the 7% overall would have been a 6%.
Other topics of interest, I'll talk about our opening schedule first. We opened 9 locations during the first fiscal quarter of 2013, 8 in the U.S. and 1 in Alberta, Canada. By the end of this week, we will have opened in the second quarter 5 additional locations: one in Washington, D.C.; one additional one in Canada; one in the U.K. and one in Korea, which is later this week, giving us 14 new openings thus far in fiscal 2013.
For all of '13, we have a current plan of 30 new locations: 14 of which are planned for the U.S.; 3 each in Canada and the U.K.; one in Australia, which will be our fourth in that country; a new one in Mexico, our 33rd location and the first new opening in Mexico in a little over 3 years; and 8 in Asia, including 5 in Japan, 2 in Korea and 1 in Taiwan.
Also this morning, I'll review with you our e-commerce activities, our membership trends, additional discussion about gross margins and SG&A in the first quarter, stock repurchase activities, which were relatively small, and of course, the 2 subsequent events, the announcement of a $7 per share special dividend, which will be payable on December 18 and the sale of $3.5 billion of senior notes.
Okay, on to the discussion of the quarter. Again, very briefly, the sales for the year or the 12 weeks ended November 25 were $23.2 billion, up 9.6% from last year's first quarter of $21.2 billion. On a reported comp basis, first quarter comps were up 7% for the quarter; and excluding gas and FX, up 6%. Again comprised of a 6% U.S. without gas and 7% international in local currencies. For the quarter, our 7% reported comp result was a combination of an average transaction increase of about 2.5% and an average frequency increase of just under 5%.
In terms of sales comparisons by geography, geographically, all the regions have been fairly consistent for the past few fiscal quarters, generally in the mid to high-single digit positive range. One outlier was due to Hurricane Sandy hitting the Northeast. Comps for the Northeast region in November were lower than it had been running by a couple of percentage points.
California has been in the mid singles positive range. Southeast and midwest in the mid to high singles. Internationally in local currencies during the quarter, Costco Canada continued strong coming in, in the low double digits for Q1 and in the mid to high singles in November. Where international sales results are being hit as in Asia, in a word, cannibalization. Since Q1 and a year ago, we've opened one unit in Korea. We now have 8 there; one unit in Taiwan, which brings us to 9; and 4 new locations in Japan, so we now have 13 in Japan. So 6 new openings in the past year on a base a year ago of 24. And additionally, in Korea, a few months ago, we, like other big-box retailers in Korea, are now required to be closed 2 Sundays a month.
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