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    COMPETITIVE WATCH:

    Costco sees profits rise due to gas sales.

    ISSAQUAH, Wash. -- Costco Wholesale Corp. reported positive quarterly results last week, due to increased gas profits and lower than predicted employee costs. Profits for the fourth quarter, ended Sept. 3, was $355.6 million, exceeding the company's estimates in August and last year's fourth quarter profit of $354.7 million. Revenue for the company also increased 19 percent to $19.9 billion in the fourth quarter of 2006, reported the Seattle Post-Intelligencer.

    For the year, Costco raked in $1.1 billion in profit, up from the $1.06 billion is raised last year. Revenue for the year totaled $60.1 billion, up from $52.9 billion in 2005.

    Dan Geiman, analyst with Seattle-based McAdams Wright Ragen, told the paper that the earnings seem to be on target. "If gas prices continue to trend down and the economy holds up, they will do quite well," he said.

    The company said in its earnings report that improved gasoline profitability in the final week of the quarter helped its bottom line. Costco benefits from falling gas prices because it stocks a low volume of gas and sells large volumes. As the prices decline, the company buys gas at a lower rate and keeps prices low at pumps while the competition is forced to keep prices higher to diminish higher priced supply. However, when gas prices rise, the company struggles because it must keep prices low, resulting in a decrease in margins.

    In addition, the company announced that it plans to open 37 more stores by the end of this fiscal year, which includes the opening of its 500th store this month. "We will continue to ramp up the business," Jim Sinegal, CEO of Costco told the Seattle Post-Intelligencer. "We will open more warehouses than we have in the past year … we hope, on the basis of what we see in the pipeline, that we will exceed 40 [new] warehouses [in fiscal 2008]."

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