The earnings report of last week reflected strong profits for Costco Wholesale Corporation(NASDAQ:COST).Thesecond quarter of fiscal year 2015 has turned out to be quite profitable for the company. There was a considerable increase in its EPS of 29%, while the YoY also saw an escalation of up to $1.35. The company previously has had stagnant earnings for quite a while; but this stagnant earning gave way to several quarters of growth; with the results of this quarter also reiterating the growth trend.
The Chief Financial Officer of Costco Wholesale Corporation (NASDAQ:COST), Richard Galanti, spent some time discussing the company’s financial affairs, after the earnings report was launched. Given below are the five points discussed and consequently emphasized by the company’s CFO.
- The increase in earning as a corollary of lower income tax
He asserted that this year the company’s tax rate was quite low as compared to the previous year. While the last year’s reports recorded a tax of 35%; this year it decreased to 30.2%. The special cash dividend yielded a tax benefit of $57 million for the company. As a result, Costco Wholesale Corporation (NASDAQ:COST)income tax line hugely benefited from this.
- Acceleration in the rate of growth of sales
Costco Wholesale Corporation (NASDAQ:COST)growth rate has been increasing over the last few years and this growth has been pretty steady, in both high-single digits and low-single digits. Lower gas rates and increasing economic growth has resulted in a more potent sales momentum.
Despite this growth rate, its revenue growth has come across a temporary downfall. This depression in revenue growth is a corollary of volatility; both in gas prices and in foreign exchange. Due to these two factors, the rise in its comparable sales is merely 2%. On the other hand, if these two factors had been excluded; comparable sales would have risen to 8%.
- Leveraging of cost structure
A leverage in Costco Wholesale Corporation’s (NASDAQ:COST)cost structure has also been observed, which is because of the company’s potent sales performance. A leverage has also been observed over Costco’s labor cost. To put in bluntly, the company is increasing labor expense at a slower rate in comparison to its sales growth.This factor has gone a long way in expanding both the company’s margins as well as the growth rate of its earnings.
- Rise in Profit due to fall in gas prices
The fall in gas prices is also a pivotal factor in play behind the company’s rising profits. This period in which the gas prices were at a decline, allowed the gasoline retailers to expand their margins as well as profits. So not only did Costco Wholesale Corporation (NASDAQ:COST)managed to save money for its customers, rather it also made a little money in the process.
- Costco’s new credit card
Costco Wholesale Corporation (NASDAQ:COST)made an announcement that it was going to partner up with Visa as well as Citigroup in the start of the next year. Co-branded credit cards have paved the way of profits for many companies over the years. Costco’s co-branded credit card deal wouldn’t benefit it much, rather it would be profitable for those members who use such cards. So in this manner; this new credit card would help to fortify and nourish the loyalty of its customers. Moreover, this strategy also reveals that Costco Wholesale Corporation (NASDAQ:COST)is in the game for long term profits instead of short ones.
