Costco Q4 2014 Results Earnings Call Transcript

Edited Transcript of Costco Q4 2014 Earnings Conference Call…

Company: Costco Wholesale Corporation (COST))

Event Name: Q4 2014 Results Earnings Conference Call

Date: October 8, 2014 11:00 AM ET

Operator: Good morning. My name is Brandi, and I will be your conference operator today. At this time, I would like to welcome everyone to the Costco fourth quarter earnings conference call and year end conference call. (Operator Instructions)Thank you. Mr. Richard Galanti, CFO. You may begin your conference, sir.

Richard Galanti – CFO

Thank you, Brandi. Good morning to everyone. This morning we reported our 16-week fourth quarter and 52-week fiscal year 2014 operating results, both which ended on August 31. These results are compared to the similar 16-week and 52-week periods in the prior fiscal year ’13, which ended last year on September 1. In addition, we are reporting this morning our September sales results for the five weeks ended this past Sunday, October 5.

I will start by stating that the discussions we are having will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and 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 fourth quarter earnings results. For the 16-week fourth quarter, earnings came in at $1.58 a share, up $0.18 or up 13% from last year’s fourth quarter earnings of $1.40.

In terms of sales for the fourth quarter. Total sales were up 9%, comp sales were up 6% on a reported basis, and excluding gas and FX impacts were up 7%. For the quarter, gas prices year over year were essentially flat, so no impact on the 6% U.S. comp figure. However, foreign currencies overall weakened relative to the U.S. dollar year over year in the fourth quarter with the biggest impact in Canada. Such that our reported 6% international comp figure assuming flat year-over-year FX rates would have been up 8%.

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In terms of sales for the five-week September period, total sales increased 7% year over year and reported comp sales increased 4%, and again excluding both gas and FX impacts comp sales would have been up 6%.

In terms of comparing our $1.58 earnings figure for the fourth quarter this fiscal year to last year’s fourth quarter of $1.40, there are five items I’d like to point out.

First, FX, in the fourth quarter year over year, currencies in the foreign countries where we operate on an overall basis weakened versus the U.S. dollar, resulting in our reported foreign earnings in Q4, when converted into U.S. dollars being lower by about $14 million pretax or $0.02 a share than these earnings would have been had FX exchange rates been flat year over year.

Second point, LIFO, last year in the quarter we recorded an $8 million pretax LIFO credit or picked up of little over $0.01 a share. This year in the fourth quarter we had a LIFO charge of almost $11 million or about $0.02 a share charge.

Third point, income taxes. Our income taxes this year in Q4 included several discrete items that in the aggregate increased our income tax line by about $8 million. The $8 million of additional taxes included a few positive items that benefited or lowered our taxes by about $7 million in total. However, these positive items in total were more than offset by a $15 million income tax charge related to our decision to repatriate from Canada back to United States about US$1.2 billion or CAD$1.3 million or Canadian cash — operations cash balances in the near future. In all, the $8 million net income tax increase from these discrete items, a negative impact to earnings of about $0.02 a share.

Fourth item, our company bonus accrual. I discussed in last year’s earnings call that our fourth quarter 2013 quarter results benefited by reversing or bringing back a portion of the company’s bonus accrual, as our fiscal ‘13 results caused us to pay bonuses at a lower level than we had accrued throughout the year.

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This year in the fourth quarter our accrual for the year-end bonuses was not reduced in the fourth quarter as it was — as it had been last year. Overall, this represented a $0.04 a share negative swing year over year to our bottom line. Remind you that the bonus program impacts a little more than 4,000 people who participated in throughout the company.

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