Bad weather, the smoking ban and cost pressures led to a 24.2% fall in pre-tax profit at Costco Wholesale UK, according to the latest accounts.
Full-year pre-tax profit fell from £22.3m to £16.9m in the year to 2 September, 2007, on turnover up 6.3% at £1.2bn. This caused the wholesaler's profit margin to slump from 2% to 1.4%, well below the 1.8% average profit margin of The Grocer's ranking of the top 30 grocery wholesalers.
Although Costco said it had registered good like-for-like sales growth in the first three quarters of the year, it stalled in the final quarter.
"Sales in the final quarter of the year were adversely affected by the inclement weather," Costco said. "The onset of the smoking ban in July had affected sales in CTN outlets. These businesses buy significant amounts of tobacco from our warehouses and the slowdown in their sales affected our sales. However, the impact of this to our profits was limited due to the low margin nature of the tobacco business."
"Efforts are afoot to substitute loss of tobacco sales with other product ranges which will also improve our margin mix. This shift is already bearing some positive results."
The main drivers of sales during the year were core foods and sundries, consumer electronics and deli departments, Costco said, and sales had increased in fresh food departments.
"We have been growing our food and sundries category of the business as the catering sector has been a growth area," the company said. "We have been updating our offering in the fresh foods departments and expect continued sales growth in these areas."
The accounts also revealed that for the three months to 25 November 2007, trading conditions had remained "challenging" with sales up only marginally on last year. However, cost pressures had eased and net operating income had increased. Costco refused to comment on current trading.