5 Things Costco Wholesale Corporation's Management Wants You to Know

Last week, Costco reported that earnings per share declined year over year in its recently ended fiscal first quarter. This fell short of most analysts' expectations.

However, as CFO Richard Galanti spoke to analysts following the earnings release, it quickly became clear that Costco's underlying earnings performance was much stronger than it initially appeared. Here are five key points he made during the earnings call.

Lots of unusual items hurting earnings

There are several items of note -- six to be exact -- that affected this year-over-year comparison of Q1 earnings. ... It's about $0.27 of impact to our year-over-year earnings comparison.

At the beginning of the earnings call, Galanti called out six items that together reduced EPS by $0.27. In other words, if none of these headwinds had occurred, Costco would have posted very strong earnings growth last quarter.

More customers are signing up for Costco's pricier executive membership.

Costco's membership signups during Q1 were up a healthy 7% year over year. As a result, it grew its membership base by nearly 2% during the 12-week quarter. Costco also continued to convert more members to pricier executive memberships. Thus, membership trends remain quite good.

Gross margin rising

In terms of core gross margins, which is ... food and sundries, hardlines, softlines, and fresh foods, as a percent of their own sales, they were positive year-over-year in Q1 by 13 basis points and they were higher year-over-year across all 4 of these merchandise categories...

In recent years, the profitability of Costco's core business has been under pressure, particularly due to inflation in food prices. Several times in the past three years, Costco has highlighted how it has kept the price for its large rotisserie chickens at $4.99 despite rising costs, to encourage customer loyalty.

Falling commodity prices in the past year have brought relief for Costco, particularly for food items. It continues to see better gross margin performance in the hardlines and softlines categories -- but now that strength is filtering through to its overall results.

Steady expansion continues

Again, last year we opened net new units of 23, so about 3.5% square footage growth. This year, again, plans for up to 32 units. If we achieve that, it would be about 5% square footage growth...

Costco continues to expand its footprint at a steady pace. In fiscal 2015, it only added 23 net new warehouses, which was down from fiscal 2014, when it added 29 warehouses. But this year, it hopes to open 32 net new warehouses. Given the possibility of construction delays, Galanti estimated that Costco will add at least 27 (and up to 32) warehouses in fiscal 2016.

Interestingly, of the 32 planned openings for fiscal 2016, 22 are in the United States and another three are in Canada. These are Costco's two mature markets. The fact that it is still finding such ample growth opportunities at home bode well for its long-term growth prospects as it continues to penetrate foreign markets.

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The article 5 Things Costco Wholesale Corporation's Management Wants You to Know originally appeared on

Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Costco Wholesale. The Motley Fool recommends American Express. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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