Costco posts 2014 loss, draws more cash from US parent

Madeleine Heffernan
January 1, 2015
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United States retailing giant Costco plans to inject yet more capital into its Australian business as it launches more stores and seeks to muscle in to the petrol station market.
Costco’s revenue surged in 2014 as customers sought out goods ranging from hearing aids to deli platters at its membership-only discount warehouses.
But despite the revenue rise, Costco Wholesale Australia has posted a full-year loss because of the costs of opening three new warehouses, and accounting changes.
Unlike fellow foreign retail invader, German supermarket giant Aldi, Costco provides detail on its Australian performance through corporate filings.
Costco’s strategy seems to differ from Aldi’s. Aldi has slowly added stores since 2001; Costco has added warehouses quickly to capitalise on Australian appetite for competition in retail and the country’s juicy margins.
Investors have become increasingly nervous about Aldi and Costco taking share of the supermarket duopoly, Woolworths and Coles.
Costco has seven stores in Australia: in Docklands and Ringwood in Melbourne, Canberra, Adelaide, North Lakes in Queensland and Crossroads and Auburn in NSW. It plans to open stores in the Melbourne suburb of Moorabin, Marsden Park in Sydney, and another store in Brisbane within the next two years.
Since entering Australia in 2009, Costco’s US parent has injected almost half a billion dollars into the local operations, and racked up accumulated losses of more than $44.5 million. But given the US company –Costco Wholesale Corporation – has a $US63 billion market capitalisation, $458 million is seemingly a small price for its ambitions.
During the past two years, Costco has drawn $170 million from its US parent to fund its expansion in Australia. According to its income statement, Costco paid tax in 2013 but didn’t in 2014.
Costco’s accounts, for the year to 31 August 2014, show a loss of $8.59 million, from a $1.8 million profit in the previous financial year. Total revenue surged to $878.5 million, up from $612 million in the previous year.
The loss was tipped months ago. Costco Wholesale Australia managing director Patrick Noone said in October that Costco would return to a profit this financial year, with sales revenues to reach $1 billion on the back of store openings.
“Overall, the number of customers shopping with us is growing and the volumes are ­growing as we add more stores,” Mr Noone told Fairfax Media. He was contacted for comment on Wednesday.
The 2014 accounts say Costco’s loss before income tax of $10.7 million, from a $4 million profit the year before, was “due to costs of opening three new warehouse in financial year 2014 and changes in unrealised gains and losses from fair-value accounting of financial instruments”.
Costco now employs more than 1900 people, accounts filed the corporate regulator show. Costco’s US shares surged more than 20 per cent in the 2014 calendar year. Its international operations, including Australia, account for just $US14.2 billion of its $US112.6 billion in annual sales.
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