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Costco Profit Drops As Demand Wanes From Higher-Income Shoppers

Published on Mar 3 2016 10:44 AM in Retail tagged: US / Costco

Costco Profit Drops As Demand Wanes From Higher-Income Shoppers

Costco Wholesale Corp. posted second-quarter earnings that trailed analysts’ estimates as higher-income shoppers show signs of curtailing spending.

Net income fell 8.7 per cent to $546 million, or $1.24 a share, the Issaquah, Washington-based company said Wednesday in a statement. Analysts estimated $1.28 a share, on average. Same-store sales in the US, a closely watched measure by investors, increased 4 per cent excluding the negative impacts from gasoline price deflation and foreign exchange, compared with an estimate of 4.9 per cent.

After outpacing its rivals last year, Costco’s growth has slowed in recent months. With a $55 annual membership fee, the second-largest U.S. retailer tends to cater more to higher-income shoppers, who are curtailing spending after recent drops in the stock market. Outside the US, Costco’s sales have been hurt by the strengthening dollar, particularly in Mexico, where Costco has 36 clubs.

"The abrupt and sharp deceleration in comp sales is of deep concern broadly and is likely a bad omen for staples retail generally," said Scott Mushkin, an analyst with Wolfe Research, in a note to clients earlier this month after Costco said its January sales came in below expectations.

Costco shares rose 1.5 percent to $152.79 at the close in New York. The stock has lost 5.4 per cent this year.

News by Bloomberg, edited by ESM. To subscribe to ESM: The European Supermarket Magazine, click here.

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