pf_01676 - Laserfiche WebLink

Home

n company opened five new warehouses, so that there were 20 unit.s in operation at the end of the period. In comparison, at the end of the first quarter of 1985, Costco was operating 12 warehouses. Membership fees provided 2.20% of the first quarter's total revenue, or $3.029 million. This represented a year -over -year gain of 224.7%, which was largely the result of the recent introduction of two paid warehouses. In addition, gsign-upsup bfor hnew ip p members atrograms tuunitsrly all of ore than s one year continued to be strop open for more than an annualized rate of 51$ and g� with membership sign-ups growing at group memberships at 29%. Since it is the company's policy to reduce merchandise prices as membership fees are received, the p group s quarter of fiscal 1986, from 12.3% inthe afirst dquarter of fiscall19the first8 5. However, the 1985 figure compares favorably with the 11.4% margin reported in the fourth quarter of fiscal 1985. Importantly, crS,G&Aexpenses continued to decrease as a percentage of total revenue, to 10.7% in the first quarter of 1986 versus 12.1% in the first quarter of 1985. The company cited two major sources of the economies of scale which produced this favorable reduction: net sales increased more rapidly than certain central and regional administrative expenses; and net sales at individual warehouses rose faster than each respective unit's operating expenses. warehouses in both periods, p Although Costco opened five p , preopening expenses declined from $1.251 million or 2.1% of total revenue in the first quarter of fiscal 1985, to $1.068 million or 0.8% of total revenue in the first quarter of fiscal 1986. Therefore, the company reported its first operating_ the first quarter of fiscal 1986. Significantly, thiswasone oquarte$62,BQearliin er than management had projected at the time of the initial public offering in November, 1985. Deferred compensation fell substantially, to $11,000 in the first quarter of fiscal 1986 from $253,000 in the first quarter of fiscal 1985. In contrast interest expense reflected the impact of the loans discussed in the prior section, so that it rose year -over -year, from $95,000 to $662,000. Due to a higher average invested cash balance, interest income increased year -over -year, from $34,000 in the first quarter of fiscal 1985 to $83,000 in the first quarter of fiscal 1986,. $1.4.20 million in the first Thus, Costco swung from a pretax loss of period last year to pretax income of $38,000 in the comparable 12 weeks of fiscal 1986. After an income tax provision of $17,000, the company's net income before an extraordinary item was $21,000. However, the utilization of $17,000 of its tax loss carryforward (which it showed as an extraordinary item on the income statement) resulted in Costco's net income equalling $38,000 in the first quarter of fiscal 1986. While this was too small an amount to result in the company's reporting earnings per share, it compared favorably with the $1.420 million loss (equivalent to a deficit or $0.13 per share) in the first quarter of 1985. INGS OUTLOOK FOR THE REMAINDER OF 1986 1 YEAR ENDING SEPTEMBER 1 1986 While Costco does not release monthly sales figures, we believe that second quarter trends in both net sales of warehouses and in membership fees were strong and in line with budget. Management indicates that has eased in some areas. However, we anticipate some declinelinntheogross ion margin. This is partially caused by Costco's gross fees to reduce prices. The second contributing ofactor oistthe zrising benumbp group members choosing the Gold Card program in order to avoid the 5% number of surcharge. In our opinion, S,G&A expense as a percentage of sales should favorably decline during the second quarter, as newer warehouses achieve higher sales. In contrast, the delay of expenses related to openings of 5