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Costco Q2 profit falls 15%; will open 14 U.S. stores

BY Dan Berthiaume

Issaquah, Wash. – Costco Wholesale Corp. reported a bigger-than-expected 15% drop in net income for the second quarter amid deep-discounting during the holidays. Net income in the quarter ended Feb. 16 fell to $463 million from $547 million.

Costco blamed the lower earnings on several factors, including weaker sales of certain nonfoods merchandise categories and lower international profits. The year-ago period was also helped by a tax benefit.

The company noted that last year’s net income was positively impacted by a $62 million tax benefit.

“Even with that distinction, however, the year-over-year comparison was unfavorable,” said CFO Richard Galanti. “Despite satisfactory sales results during the second fiscal quarter, several other factors led to lower earnings. These factors included: weaker sales and gross margin results in certain non-foods merchandise categories, particularly during the four-week holiday selling season; weaker gross margins in our fresh foods business; and lower reported international profits, resulting from the significant weakening of foreign exchange rates.”

Net sales increased 6% to $25.76 billion, from $24.34 billion. Total same-store sales rose 3%. Costco cited a positive tax benefit the company received in fiscal 2012, as well as weaker sales and gross margins in several product categories and unfavorable foreign currency exchange rates as impacting its net income.

Costco also said it plans to open 14 new stores in the U.S. by the end of fiscal 2014.

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Oscar Mayer rolls out sizzling app

BY CSA STAFF

Oscar Mayer is giving bacon lovers a reason to wake up early. The brand has unveiled the first-ever iOS device that wakes people up with the smell of bacon. The device, called Wake Up & Smell the Bacon, syncs with the Oscar Mayer Wake Up & Smell the Bacon iPhone app to emit the scent and sound of sizzling bacon when the rooster crows.

Bacon lovers everywhere can apply from now through Friday, April 4 at http://wakeupandsmellthebacon.com/ for a chance to receive a free Wake Up & Smell the Bacon device. To use it, download the Wake Up & Smell the Bacon app and plug the detachable device into the headphone jack of an iPhone. The device will not be sold in stores and quantities are limited, so fans are encouraged to apply early and often.

Those who do not receive a device will still be able to download the Wake Up & Smell the Bacon application free in the App Store so they can wake up to the sound of sizzling bacon and bacon sayings or "baconisms."

Wake Up & Smell the Bacon is the latest brainchild of the Oscar Mayer Institute for the Advancement of Bacon, an online hub for bacon innovations from the Oscar Mayer brand. Last year OMIFAB created an e-commerce site to help consumers give the gift of bacon for Father’s Day in its Say It with Bacon campaign.

"With nearly 2 million mentions of #bacon on Instagram, it seems people never get tired of bacon. That’s why our team decided to develop a device to give folks what they long for most," said Tom Bick, senior director of integrated marketing and advertising at Oscar Mayer. "As the category leader, Oscar Mayer is thrilled to bring the first-ever, bacon-scented mobile device to market, giving bacon aficionados a new reason to welcome their morning alarm clocks."

Winning applicants will receive the Wake Up & Smell the Bacon device six to eight weeks after applications close. Bacon fans may apply for their chance to win the device once a day.

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Kroger eyes $100 billion mark in 2014

BY CSA STAFF

Bad weather and a reduction in food stamps didn’t seem to have an effect on Kroger during the fourth quarter as the retailer posted a 4.3% increase in identical-store sales, meaningful profit improvement and offered an optimistic outlook for the year ahead.

Total sales increased by 4.8%, when adjusted to exclude an additional week the prior year, to $23.2 billion and full-year sales grew by 3.9% to $98.4 billion. That puts the company in range of surpassing annual sales of $100 billion this year, assuming Kroger maintains its track record of consistent identical sales growth, modest square footage expansion and remodeling activities. The company said it expects 2014 identical-store sales to increase between 2.5% to 3.5% and for food inflation to remain low.

From a profit standpoint, Kroger said net income, adjusted to exclude one-time charges and the additional week the prior year, increased 9.7% to $406 million, or 78 cents a share, from $370 million, or 71 cents a share. Adjusted net income for the year increased to nearly $1.5 billion, or $2.85 a share, from $1.37 billion, or $2.63 a share.

"The remarkable consistency of Kroger’s performance has shown time and again that serving our customers is serving our shareholders," said Rodney McMullen. "We are well positioned to continue delivering sustainable high performance that benefits our customers and shareholders today and in the future."

Toward that end, Kroger said it will invest between $2.8 billion and $3 billion this year after spending $2.3 billion last year and $2 billion in 2012. The company ended the year with 2,640 supermarkets and multi-department stores operating under banners that include Kroger, City Market, Dillons, Food 4 Less, Fred Meyer, Fry’s, Harris Teeter, Jay C, King Soopers, QFC, Ralphs and Smith’s. The company also operates 786 convenience stores, 320 jewelry stores, 1,240 supermarket fuel centers and 38 food processing plants in the U.S.

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