Costco, Staples on target

March 2, 2000: 1:35 p.m. ET

Both chains post improved results, but office supplier's Web site loses ground

NEW YORK (CNNfn) - Costco Wholesale Corp. and office supply retailer Staples Inc. both met earnings expectations for improved results in the recent fiscal quarters, continuing the strong retail earnings for the period.
    But Staples' online business took a hit in the fourth quarter, and expects continued losses during fiscal 2000, causing the company's shares to tumble 3-13/16, down to 22-1/2, in early afternoon trading Thursday.
    Costco's net income rose 19 percent to $181.6 million, or 39 cents a diluted share, for the 12 weeks ended Feb. 13, in line with forecasts of analysts surveyed by earnings tracker First Call. A year earlier, the company posted net income of $152.0 million, or 33 cents a diluted share, adjusted for January's two-for-one stock split.
    Revenue rose 17 percent to $7.7 billion from $6.6 billion, with comparable- store sales gaining 14 percent in the period. Membership fees and other revenue rose 14 percent.
    For the first 24 weeks of its fiscal year net income rose 125 percent to $310.9 million, or 70 cents a share, from $138.2 million, or 32 cents, a year earlier. Year-ago results include an after-tax charge of $118 million, or 27 cents a share, for a change in accounting practices.
    Fiscal year-to-date revenue rose 17 percent to $14.7 billion.
    Shares of Costco (COST: Research, Estimates) rose 2-1/2 to 49 in afternoon trading Thursday.
    Staples meets estimates
    Staples said it expects its Staples.com business-to-business Web sales to lose about $150 million this coming year, but the unit's numbers no longer are contained in basic results due to plans to take the company public in an initial public offering later this year.
    One retail analyst said the poor showing of the retailer's Web site shows that online shopping is not as hot as Wall Street thought, despite two reports out this week showing Internet sales in the billions for February.
    The analyst also found Staples.com's performance surprising, given the strong, well-established name and successful bricks-and-mortar operations.
    For the quarter, Staples.com posted a net loss of $9.8 million, compared to a net loss of $0.3 million a year ago. For the year, the business reported a net loss of $16.4 million compared to a net loss of $$0.5 million a year ago.
    Yet sales on the Web site reached $43.1 million for the quarter, an 80 percent increase over the third quarter and a 453 percent jump from the $7.8 million in sales it generated a year ago.
    Excluding the Web site, for the fiscal fourth quarter ended Jan. 29, the company earned $129.2 million, or 28 cents a diluted share, excluding the $9.1 million loss (2 cents a share) on its interest in Staples.com.
    The earnings were in line with estimates of analysts surveyed by First Call, and mark the 28th straight quarter the company has met or exceeded estimates. A year ago, Staples earned $101.6 million, or 22 cents a share, excluding merger and store relocation charges.
    Sales in the latest quarter rose 25 percent to $2.6 billion from $2.1 billion a year earlier.
    For the fiscal year, earnings excluding charges and Internet sales operations came to $331.3 million, or 70 cents a share, up from $240.7 million, or 53 cents a share, the previous year. Revenue rose 24 percent to $8.8 billion from $7.1 billion.
    Shares of Staples (SPLS: Research, Estimates) fell 4-9/16 to 21-3/4 in early Thursday afternoon trading.