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Costco Results Curbed By Returns

5/31/2007 08:34:00 AM Eastern

Issaquah, Wash. – Costco blamed product returns, notably in electronics, for reducing its sales and net income gains for its fiscal third quarter ended May 13.

Net sales for the third quarter of fiscal 2007 increased 10 percent to $14.34 billion, from $13.01 billion during the third quarter of fiscal 2006. This quarter's reported sales were reduced by $228.2 million as a result of an increase in the sales returns reserve balance, the warehouse club said.

“This increase resulted from the previously announced continuing review of historical data of trends in sales returns used to estimate future returns recorded in the reserve balance. Excluding the increase to the sales returns reserve, net sales for the third quarter were $14.57 billion, representing a 12 percent increase over the prior year,” the company said.

Costco expects that its new return policy for certain electronic items, implemented in the U.S. during the third quarter, “will favorably impact future returns experience.”

Reported net income for the third quarter of fiscal 2007 was $224 million compared to $235.6 million during the third quarter of fiscal 2006. Included in this year's third quarter results is a $48.1 million pre-tax ($30.3 million after tax) charge primarily reflecting the reduced gross margin on estimated future returns recorded in the increased sales return reserve mentioned earlier.

Excluding the adjustment to the sales return reserve, third quarter net income would have been $254.3 million, a 14 percent increase over last year.

Comparable sales for the fiscal third quarter (twelve weeks) in the U.S. were up 7 percent and for the first 36 weeks of the fiscal year up 5 percent.

Net sales for the first thirty-six weeks of fiscal 2007 increased 9 percent to $43 billion from $39.47 billion during the first thirty-six weeks of fiscal 2006. Net income for the first 36 weeks of fiscal 2007 was $710.4 million, compared to net income for the first 36 weeks of fiscal 2006 of $747.6 million.