Reserves cut Costco profit 5%

Costco Wholesale Corp. said Thursday that fiscal third-quarter earnings fell after the No. 1 U.S. warehouse club increased the funds it set aside to pay customers who return big-screen TVs and other high-tech goods.

Costco Chief Financial Officer Richard Galanti said he expected fourth-quarter earnings per share of 81 cents to 83 cents, slightly below analysts’ expectations of 84 cents, according to Reuters Estimates.

The company is “going through an environment where I still want to be a little conservative,” Galanti said. “We’re still going to feel the impact of electronics” in the fourth quarter.

Costco said net income fell 5% to $224 million, or 49 cents a share, in the quarter ended May 13, from $236 million, or 49 cents, a year earlier. Excluding non- recurring items, Costco earned 56 cents a share, which matched the Wall Street forecast.

The company said sales rose 10% to $14.34 billion, excluding membership fees. Net sales were reduced by $228 million because of an increase in the sales returns reserve balance, Costco said.

Membership fees rose to $318 million from $276 million.

Costco added reserves to account for the possibility of more customers returning older electronic devices purchased under the previous open-ended policy.

Costco shares fell 6 cents to $56.47.