Costco Wholesale Corporation (COST), one of the leading U.S. warehouse club operators, recently posted second-quarter 2010 results. The quarterly earnings of 70 cents a share missed the Zacks Consensus Estimate by a penny but rose 27.3% from 55 cents delivered in the prior-year quarter.

On a reported basis, including a charge of 3 cents a share, quarterly earnings came in at 67 cents, up 21.8% year-over-year.

Costco’s quarterly earnings underperformed the Zacks Consensus Estimate by 1.4%. In the first quarter 2010 and fourth quarter 2009, earnings had topped the Zacks Consensus Estimate by 1.7% and 7.8%, respectively.

The double-digit increase in the bottom-line was buoyed by a double-digit rise in top-line due to improved sales of discretionary items, as consumers started flocking to warehouse clubs. The company’s international operations have been the major driver.

Total revenue, which includes net sales and membership fee, climbed 11.3% year-over-year to $18,742 million. Net sales jumped 11.3% to $18,356 million, whereas membership fee rose 8.7% to $386 million.

Costco’s comparable-store sales for the quarter rose 9%, reflecting a comparable sales growth of 5% at its U.S. locations and 26% at its international divisions. The results were favorably impacted by rising gasoline prices and a weaker U.S. dollar.

Excluding the effects of gasoline prices and a softer dollar, Costco’s comparable-store sales rose 3% with U.S. comparable sales up 2%, while international comparable sales were up 10%.

The warehouse retailer, which faces stiff competition from BJ’s Wholesale Club Inc. (BJ) and Sam’s Club, a division of Wal-Mart Stores Inc. (WMT) also said that comparable-store sales for February rose 9%, reflecting a comparable sales growth of 5% at its U.S. locations and 26% at its international divisions.

Excluding the effects of gasoline prices and a softer dollar, Costco’s comparable-store sales for February rose 4% with U.S. comparable sales up 2%, while international comparable sales were up 10%.

The Issaquah, Washington-based company’s operating income surged 18.1% to $470 million, whereas operating margin showed a marginal expansion of 10 basis points to 2.5%.

Costco ended the quarter with cash and cash equivalents of $4,134 million, long-term debt of $2,134 million, and shareholders’ equity of $10,743 million.

Costco currently operates 566 warehouses, including 413 in the United States and Puerto Rico, 77 in Canada, 32 in Mexico, 21 in the United Kingdom, 9 in Japan, 7 in Korea, 6 in Taiwan and 1 in Australia.

Zacks Investment Research

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