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Costco Wholesale Corp COST
Q4 2012 Earnings Call Transcript

Transcript Call Date 10/10/2012

Operator: Good morning. My name is Tabitha, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Fourth Quarter Fiscal Year End Operating Results for 2012 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

Thank you. Mr. Galanti, you may begin your conference.

Richard A. Galanti - EVP and CFO: Thank you, Tabitha. Good morning to everyone. This morning's report is our release to our 17 week fourth quarter and 53 week fiscal year 2012 operating results both which ended September 2nd. For comparison purposes the fiscal quarter and year are compared to last year's 16 week and 52 week periods for the prior fiscal year '11.

As with every conference call, I'll start by stating that these discussions we are having will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and that these statements involve risks and uncertainties that may cause actual events, results, and/or performance to differ materially from those indicated by such statements. The risks and uncertainties include, but are not limited to, those outlined in today's call as well as other risks identified from time-to-time in the Company's public statements and reports filed with the SEC.

For the fourth quarter, to begin with our 17-week fourth quarter of fiscal 2012 operating results, we reported earnings per share of course this morning of $1.39, up 29% from last year's reported fourth quarter earnings of $1.08. Sales for the quarter were up 14%, which of course include the extra week in Q4 this year, again at 17-weeks this year versus 16-weeks last year. And our comparable sales which we do compare like 17-week periods both years were up 5% on a reported basis and up 6%, excluding gas and FX.

Last year's fourth quarter results included $32 million pre-tax LIFO charge that impacted last year's earnings per share by $0.04. This year's fourth quarter results included $11.5 million pre-tax LIFO charge, impacting this year's fourth quarter earnings by $0.02 a share.

Several other items impacting the year-over-year fourth quarter comparisons of earnings include the following; first, the U.S. and Canada membership fee increase that took effect earlier this fiscal year, this added approximately $26 million pre-tax or $0.04 a share in this year's fourth quarter. Second, FX headwinds; earnings from our foreign operations are converted into U.S. dollars when we consolidate and report our results. Year-over-year in the fourth quarter on average, the foreign currencies where we operate weakened versus the U.S. dollar, this resulted in roughly $20 million pre-tax or $0.03 a share after-tax hit or impact to this year's fourth quarter. That is assuming FX exchange rates were flat year-over-year. Our foreign country operating results in the fourth quarter were reported in U.S. dollars would have been higher by that amount. Third, our $900 million pay down or 5.3% fixed rate debt this past March. This reduced our interest expense comparison year-over-year Q4 by approximately $15 million pre-tax or $0.02 a share. Fourth, as reported earlier, on July 9th, we completed the acquisition of the remaining 50% ownership interest in our Costco Mexico operations. The impact to our fourth quarter 2012 P&L was twofold; first, about $0.02 per share benefit to fourth quarter '12 for the extra earnings we now own, if you will; and second, a one-time charge of $8.3 million or $0.02 a share to our income tax line. This related to the dividend payment from Costco Mexico to Costco U.S.

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