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Projections .. We believe that CO~T's disciplined adherence to the best warehousing principles, aggressive expansion, and tight operating controls and systems will help to produce burgeoning earnings. Further enhancing the company's opponunities .for growth are the warehouse industry's growing consumer acceptance and fast-growing market share. For the full year of 1986 (ending September). we project that sales wili grow 105""'110%. Earnings should equal about SO.30 per share (untaxed) versus Jast year's :S0.S1 loss for the same period. Preliminarily, we forcast that 1987 sales and EPS will jump 70-75% and 60-65%, respectively. Note that we have modestly lowered our earnings estimate for 1986 from our previous forecast of 50.35-0.40 p~r share to reflect timin9 of the convertible interest paid versus interest benefits from investment. heavy pre-opening costs re COST's aggressive expansion and dilution. Dilution from the recent convenible offering, timing of warehouse openings. allocation of other expenses. and unit immaturity all can significantly influence and/I:>r disrupt quanerly EPS patterns. T"Able 2 Costco Wholesaia Corp. Quarterly EPS Projections Q1 02 03 Q4 Year (Sept.) Fi985 F19S6E F1987E F1988E S(0.13) O.OOA 0.04-0.05 (SO.08) 0.09A 0.10-0.11 (SO.13) 0.04 0.12-0.13 (50.18) 0.17 0.34 'u.36 (50.51 ) 0.30 0.60-0.65 1.15-1.20 Underlyin9 our estimates are the following assumptions: 1. Continued rapid sales grollvth, Contributing to gains in volume are our expectations of 25-30% same-store sales growth in each of 1986 and 1987 and 10-15 new units opened each fisc!!1 year through at least fiscal 1988. By that time, warehouses should be annualizing at SSO-60-million average volume. 2. Net margins of at least 1.2.1,400 by the end of fiscal 7988. Net of 1.8-2.0% is attainable. we think. in a reasonable period thereafter. Aiding the improvement in margins will primarily be sharp operating-ratio leverage from stronger per-unit sales. Gross margins are expected to remain relatively near current levels. as product-mix benefits are offset by aggressive pricing_ The company would actually lik.e to cut prices moderately. SGA operating ratios should decline at least 200 basis points from today's It3vel of about 10%. No significant further borrowings and resultant interest costs are anticipated during the rest of the current fiscal year, but financing for expansion is a possibility later next year. 3. Increased competition in most areas. COST now faces warehouse competition in most of the markets In which it operates. While all new competition c!!In hun, we discern very little difference in COST location performance with or without present 6