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.

1. 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.

2. 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%.

3. 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.

4. 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.

5. 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.

This deal with Visa Inc. (NYSE:V) was not so sudden, as according to the Wall Street Journal it was in negotiation for quite some time. Costco Wholesale (NASDAQ:COST) had been negotiating not only with Visa Inc. (NYSE:V), but was also involved in talks with Citigroup Inc. (NYSE:C), MasterCard Inc. (NYSE:MA) and JP Morgan Chase & Co. (NYSE:JPM). Each one of these parties had an eye on this deal, and only one company was able to finally meet the company’s terms, which shows that Costco Wholesale (NASDAQ:COST) indulged in a very hard bargain. However, no detailed announcement has been made by any one of the company so far. Whereas, Costco Wholesale (NASDAQ:COST) has only stated that the new card will be similar to one that was issued under American Express (NYSE:AXP) partnership.

As soon as the report of the final deal between Visa Inc. (NYSE:V) and Costco Wholesale (NASDAQ:COST) struck the market, the share value of Citigroup Inc. (NYSE:C) and Visa Inc. (NYSEV) jumped up by 2% and 3%. On the other hand, American Express (NYSE:AXP) saw a greater loss as soon as the deal ended and its share price went down by 6%. The True Earnings cards segment was also shaken, which composed of almost 10% of American Express (NYSE:AXP) credit cards. This means almost 5.5 million out of 55 million American Express (NYSE:AXP) cards were True Earnings cards. However, in comparison to the previously quoted data, Visa Inc. (NYSE:V) is running a network of 281 million which means that Costco Wholesale (NASDAQ:COST) would be co-branding less than 2% of Visa credit cards.

Furthermore, Costco Wholesale (NASDAQ:COST) would not be the only one that would greatly benefit from this deal, Visa Inc. (NYSE:V) will also reap a good amount of revenue, despite offering the service at low rates. It is being estimated that even Visa Inc. (NYSE:V) charges a 2% transaction fee, thus making $2.2 billion from all Costco Wholesale (NASDAQ:COST) purchases alone. If we use the figures of fiscal year 2014, then this would add 17% to Visa Inc.’s (NYSE:V) top line. However, we are just predicting this data by assuming the best case scenario, since we don’t know how many True Earnings cardholders would be shifting to the new credit card scheme.

Whatsoever, Costco Wholesale (NASDAQ:COST) has emerged as a clear winner. The company has been successful in signing a great deal which will earn it good revenues. By joining hands with Visa Inc. (NYSE:V) the company has given its retailers direct way to deal with the 281 million Visa cardholders instead of sticking to only 55 million American Express cardholders. As mentioned, the deal will also prove beneficial for Visa Inc. (NYSE:V), however, it is hard to gauge the extent of this benefit right now.

The sales of same-stores saw an increase of 4% in the sales it made in United States, however in the rest of the world the results weren’t that pleasant, since the sales went down by 2%. But with the inclusion of the sale of Gasoline, the company saw an increase of overall 2%. If the sales of gasoline are taken out of the equation, then the same-store sales in U.S escalated by a figure of 8%. Moreover, both international and combined sales also saw an increase of 8%.

But not only did the percentage of sales rise; rather the merchandise cost as well as the SG&A expenses saw an elevation. The former increased by 3.8%, while the latter witnessed an increase of 5.5%.

There wasn’t any dramatic change in the income generated by Costco Corp (NASDAQ:COST) from its membership fee. A probable reason for this is that its gross income and its membership revenue generally go side by side. Therefore, it becomes mandatory for the company, either to go for an increase in the fees or else propel inclusion of new members.

Furthermore, an important issue to be addressed is to keep a check on the costs. In fact, this was the very reason in play which compelled the company to call an end to its transaction with American Express.  There is a strong likelihood that in order to cut down its costs, Costco Corp (NASDAQ:COST) must have wanted a decrease in the swipe fees it had to pay. However, American Express, probably refused to agree to this and thus the deal between the two companies came to an end.

There are new horizons for Costco Corp (NASDAQ:COST) , which ultimately might result in the increase of its members. An example of this is the expected deal between Costco Corp (NASDAQ:COST) and Citigroup Inc. (NYSE:CTY), or between Costco and Visa.

Statistics suggest that the total income of the company for this quarter amounted to about $598 million. This figure includes the tax benefit of $57 million as well as a tax charge of $14 million. The company’s total earnings per share have exceeded the consensus estimate, with a figure of $1.24 per share. This remains true even if Costco Corp’s (NASDAQ:COST) net $0.11 is taken out of the equation.

So far the company hasn’t made public any revenue estimates for the coming third quarter. However, consensus analysts’ estimate is still there for guidance. The latter estimate suggests an EPS of $1.17 with a gross generated income of $26.84 billion for the third quarter of fiscal year 2015.

The company’s cash flow has been superb ever since the company started operating, and it has been giving out dividends. The wave of dividends has been turbulent, going up and down at times depending upon the financial shape of the company but CostcoWholesale Corp.  (NASDAQ:COST) has never held out the dividends. That is why the company has been popular with the investors. Now, the company is making 20 percent from its e-commerce business which means that even warehouse retailers have realized that internet is the next big thing for shopping. Costco Wholesale Corp. (NASDAQ:COST) is setting a precedent for all the retailers out there that are just starting or are mellow because of the competition looming over them.

The company also made an impression on long term investors, promising them instant dividends and share buyback programs. Long term investors are extremely important for any company and it’s good to have many of them onboard because these are the investors that stick with you through thick and thin. Costco Wholesale Corp. (NASDAQ:COST) also provides lucrative prospects for short term investors who are looking for immediate return. Costco Wholesale Corp. (NASDAQ:COST) pays them off with healthy dividends and more often than not, small profits too.

The company has resolved to open 30-31 brick and mortar stores and will further expand with the passage of time. It now only has to keep the investors interested in the stock and not get detracted by expansions.Losing money at this stage can be crucial to the company, plus investors would like the company to get stable first rather than expand prematurely.

One thing Costco Wholesale Corp. (NASDAQ:COST)should make sure, that it doesn’t get too soft on investors. Spending too much money on dividends can be consequential. For now, it should just look to stabilize its finances and get investors onboard as many as it can.

Costco Wholesale Corp. (NASDAQ:COST)’s future is bright, albeit if it keeps finances intact and keep its investors happy. As for now, it should make sure that the stock doesn’t plunge and that investors remain onboard. If CostcoWholesale Corp.  (NASDAQ:COST) can deal with that, there won’t much be hurdles for the company in the future. The management will rejoice at the future prospects of the company. Let’s see how things turn out eventually.

Following the announcement Costco’s (NASDAQ:COST) shares have increased 10% and on Wednesday, the company reached a closing high of around $156. Costco (NASDAQ:COST) has plans of expanding its global business in the future and the company generated enough cash to support that growth. This announcement of the special dividend depicts a reasonable return of capital to the company’s shareholders.

A reliable source of cash pay: Costco (NASDAQ:COST) has been annually inaugurating 30 new warehouses in the recent years and along with that the company is also working on a project related to IT modernization. The IT modernization program will enable the company’s various stores to perform more efficiently and will also improve the e-commerce.

In the previous two years, around $2 billion have been spent by Costco (NASDAQ:COST) on capital expenditures in order to support its initiatives. The company is anticipating a rise in its expenditures in the fiscal year 2015 from $2.5 billion to $2.7 billion. However, for the previous 4 quarters, the company’s operating cash flow has also been increasing and it exceeded the mark of $4 billion which means that Costco (NASDAQ:COST) can manage to expand its CapEx program with ease.

The company can at the same time generate $600 million in yearly dividends.

Making cash available for dividends: Although Costco (NASDAQ:COST) is able to generate reliable cash even while it is trying to fund its plans of expansion; however, the company still had to make some effort to make cash available for its shareholders. By the end of the fiscal year 2014, the company had $7.3 billion of cash as well as cash equivalents and other short-term investments.

Out of the $7.3 billion, around $1.4 billion was not readily available as the company did not yet receive its shares from credit and debit card companies. Moreover, another $1.8 billion has been reinvested by the company outside U.S as the company can then avoid paying any U.S corporate taxes on that amount. In the later months of 2014 Costco (NASDAQ:COST) made a decision of withdrawing $1.2 billion from Canada.

The company made this decision based on the fact that its growth rate in Canada had been relatively low and the company was just required to pay a small tax bill of $15 million for bringing the amount back home. This decision helped Costco (NASDAQ:COST) in making cash available paying back its shareholders.

Buybacks: Costco (NASDAQ:COST) has a history of returning cash to its shareholders and this is not the first time the company has announced a special dividend. However, Costco (NASDAQ:COST) could have utilized the method of share buybacks to return cash to its shareholders. Buybacks does not require the acquisition of an instant tax bill which is an advantage.

Moreover, buybacks reduces the share counts and as a result it elevates the value of the rest of the shares which further elevates the capital gains for the company. Costco (NASDAQ:COST) shares recently reached new highs and the future seems positive for the company’s growth.

The higher SG&A costs however had a bad effect on the profit growth. The retailer’s profit margins were enhanced by 22 basis points YOY, which were backed up by solid margins in the gas business along with $17 million from pretax nonrecurring recovery of the loss. As far as the topline front is concerned, Costco (NASDAQ:COST)reported an increase of 7.4% in revenue, which was in line with the field estimates.Costco (NASDAQ:COST) has adequately leveraged its strength as a warehouse retailer.

This in turn attracts new customers and builds store activity as well. Even though the gradual client movement to web shopping has made issues for practically every retail network all over the country, it doesn’t appear to inconvenience Costco (NASDAQ:COST) much. Actually, after observing Costco (NASDAQ:COST), other warehouse clubs are now attempting to draw in clients, which is suggestive of the fact that it is not the whole warehouse business that is doing great, it is justCostco (NASDAQ:COST).

In this quarter which was the Q1 of fiscal 2015 and Q3 of 2015 for Sam’s Club, store activity at Costco (NASDAQ:COST) expanded by 4.5% YOY, determined by an ascent in the number of members and a change in renewal rates. Complete membership charges for the quarter expanded by a strong 6% to $582 million. The renewal rates were 90.7% and 87.3% in North America and worldwide respectively, while these figures remained at 90.4% and 86.5% respectively last year.

Interestingly, store movement at Sam’s Club expanded by only 0.2% in spite of the fact that it works the same plan of action. Actually, in a few ways, it has had leverage over Costco (NASDAQ:COST). It has a more extensive range and less expensive membership charges but customers still want to shop at Costco (NASDAQ:COST), which plainly shows the warehousebehemoth’s dominance in this area. The retailer depends on giving its clients great quality items at a sensible cost in a compelling environment.

Costco (NASDAQ:COST)routinely changes the brands it offers, and subsequently, clients are always discovering something new at its stores and get an experience synonymous to ‘treasure hunting’. To be more appealing, every now and then, Costco (NASDAQ:COST) offers top of the line products, such as, purses from Coach and champagne from Dom Perignon. Costco (NASDAQ:COST)additionally serves its clients based on the ongoing trends and interest in the respective neighborhoods.

It also provides its store managers with the liberty to choose some products that they think would work best for the neighborhood.