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For the year, Costco reported earnings growth of 22%, to $1.85 per share on a fully diluted basis. And here's what I find interesting: Costco's fourth-quarter earnings also came in quite strong, at $0.62 per share, well ahead of expectations. Why is this interesting? Well, because the last time I checked, Costco has to operate in the exact same environment as other retailers, and yet it is one of the few that isn't claiming that weather issues -- particularly the passel of hurricanes that have bedeviled Florida and much of the South and East Coast -- have had a deep impact on its results. Target
My point is that there's something else going on, and Costco's benefiting, rather than suffering, from it. Perhaps consumers are finally putting the brakes on what has been an amazing string of heavy spending over the last 18 months. Yes, the storms, and the lingering summer weather, and the moon being in the seventh house and all of that have an impact. But they are not THE deciding factors, and some of the declines we're seeing point to some deeper variables at work.
Costco also benefited from some improved operating margins, with administrative expenses rising slower than net revenues. That's a good thing. Costco has never been a company that has built monuments to management -- its corporate headquarters are famously Spartan. Costco does, however, provide compensation and benefits packages to its rank-and-file employees that far exceed that of its competitors, something that has drawn ire from some investors. I think these particular investors are wrong.
For the year thus far, Costco has opened 22 new warehouses. The company has had a longtime policy of building new warehouses out of cash flow -- thus it typically has minimal long-term debt. Costco intends to open another 10 stores by the end of the year. One thing to keep in mind is that these warehouses tend to pay for themselves within about five years. Costco's building somewhat aggressively, and unless its economics change dramatically, this means that there should be good things to come for its shareholders.