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December 10, 2009 at 8:37 AM

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Costco brings back Coke next week, reports 1 percent boost in first-quarter profit

Posted by Melissa Allison

After a pricing tiff that was more public than usual, Coca-Cola and Costco Wholesale have made up.

"Effective this Monday, Coca-Cola products will be on our shelves," Costco Chief Financial Officer Richard Galanti said during a conference call with analysts on Thursday.

For Costco customers, that development trumped news of the Issaquah-based company's 1 percent gain in first-quarter profit, to $266 million or 60 cents a diluted share.

Costco pulled Coke products last month because of a pricing dispute but declined to give details.

"Our sign on shelves -- 'Until we can provide members with these products at competitive prices, we're not going to sell it' -- and we're now going to sell it, that's all I have to say at this point," Galanti said. "We have a long-term relationship with Coca-Cola and are happy to have them on our shelves. I know everybody wants to know a little bit more, but that's all you're getting."

It's rare for a major retailer to pull a big brand like Coca-Cola. Historically, they have feared upsetting customers and losing sales. But with private-label products increasing in popularity, customers have more alternatives if a brand disappears.

And Costco has said that its customers regularly shop at grocery stores, too.

For the quarter, sales grew 5 percent to $17.3 billion, the company's first sales gain in a year.

Although the figures were what analysts expected, Costco's stock fell as much as 43 cents in early trading before rebounding to close up 10 cents to $58.76 a share.

The stock dip was partly because Costco said same-store sales in November were shakier than September and October, although the overall 3 percent gain for the quarter was also the first upward move for that measure in a year.

Costco's first quarter and even its November monthly tally ended on Nov. 22, leaving out the biggest shopping days for Thanksgiving and the start of the Christmas season.

The company has been particularly hampered by its heavy presence in California, which was clobbered by the recession and has caused a sales drag for many retailers there. Of Costco's 566 warehouses worldwide, 116 are in California.

"It's doing astonishingly well given the drag in southern California," said analyst Ed Weller at ThinkEquity Partners, who does not own the stock. "Los Angeles and San Diego together were the most profitable parts of the company. Formerly."

Costco is no longer slashing prices like it did last holiday season, when it marked down items like milk, cheese and chickens by about $35 million. One example was rotisserie chickens, which for seven weeks cost $4.99 instead of $5.99.

The chain cut prices fast and deep to drive business during the initial economic shock, even though its cost of goods had not fallen, Galanti said. It is no longer discounting so dramatically.

Costco also isn't finding the same amazing deals it saw last fall, when other retailers suddenly needed to unload inventory, he said.

For example, "the two-packs of televisions at ridiculous prices relative to the week before" are gone.

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