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Wednesday, May 24, 2000

Costco shares plummet
on mishandled warning

Bloomberg News


ISSAQUAH, Wash.-- Costco Wholesale Corp. shares fell as much as 36 percent after the biggest U.S. warehouse-club retailer said earnings missed forecasts for the first time since 1995 and warned of slower growth.

Costco, which has four stores in Hawaii and is building a fifth in Waipio Gentry, disclosed earnings to select investors and analysts this morning. The shares fell $8.75 to $31.87 in midafternoon trading of 144 million, making it the most-active U.S. issue. Earlier, it dropped as low as $25.94.

Costco blamed the slowing growth on the costs of adding stores and regional offices, as well as rising wages and other expenses. The retailer said it now expects earnings per share to rise 11 percent to 13 percent next year, less than the 16 percent forecast by analysts.

A mishap delayed the release of Issaquah, Wash.-based Costco's results to the public this morning. Costco said it sent a copy of its earnings via facsimile to about 300 people, including analysts and instituional investors, at 5 a.m. New York time, when it typically puts out its results, and had arranged for simultaneous release through Business Wire. Business Wire said internal problems may have delayed the release through its service until 9:16 a.m.

"There has been no selective disclosure from our part," said Costco Chief Financial Officer Richard Galanti.

Costco has 305 warehouses, which members pay a fee to join. It has 231 stores in the United States, 59 in Canada, eight in the United Kingdom and seven in Asia. The company also has 18 locations in Mexico with a joint venture partner.

Costco's expenses have risen as it opened stores worldwide and invested in expanding on the Internet, analysts said. The company told analysts that sales are expected to slow. Costco's sales have risen an average 11 percent the past five years.

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