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Costco's (COST) Q2 Earnings Miss Estimates, Online Sales Spike

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Costco Wholesale Corporation (COST - Free Report) came up with second-quarter fiscal 2021 results, wherein both the top and the bottom lines improved from the prior-year period. While earnings missed the Zacks Consensus Estimate, revenues surpassed the same. Notably, this operator of membership warehouses maintained its decent comparable sales run. The company’s e-commerce sales have also been showcasing strength owing to stay-at-home trend amid the ongoing pandemic.

The results also reflected an expense for COVID-19 premium wages that to an extent hurt profit margin. Shares of Costco declined 2.4% during the after-market trading session on Mar 4.

Q2 Earnings & Sales Picture

Costco posted quarterly earnings of $2.14 per share, which includes 41 cents in costs incurred primarily from COVID-19 premium wages. We note that the figure fell short of the Zacks Consensus Estimate of $2.42. Nonetheless, the bottom line improved from earnings of $2.10 per share reported in the year-ago quarter.

Total revenues, which include net sales and membership fee, were $44,769 million, up 14.6% from the prior-year quarter. The figure also outpaced the Zacks Consensus Estimate of $44,504 million.

Undoubtedly, Costco’s growth strategies, better price management, decent membership trends and increasing penetration of e-commerce business have been contributing to its performance. Thanks to its status of “essential retailer,” the company has been benefiting from coronavirus-induced spike in demand.

In the reported quarter, the company’s e-commerce comparable sales rose 75.8% year over year. Excluding the effect of gasoline prices and foreign exchange, the same exhibited an improvement of 74.8% year over year.

With the prevailing trend of digital transformation in the sector, retailers are rapidly adopting the omni-channel mantra to provide a seamless shopping experience. Costco, which shares space with Dollar Tree (DLTR - Free Report) , Dollar General (DG - Free Report) and Target (TGT - Free Report) , has been following the trend. Costco operates e-commerce sites in the United States, Canada, the U.K., Mexico, Korea, Taiwan, Japan and Australia.

Delving Deeper

Costco’s net sales grew 14.7% to $43,888 million, while membership fee increased 8% to $881 million in the reported quarter. Comparable sales climbed 13%, reflecting an improvement of 11.4%, 13.4% and 21.5% in the United States, Canada and Other International locations, respectively. We note that shopping frequency rose 1% globally and 2.7% in the United States.

Excluding the impact of foreign currency fluctuations and gasoline prices, the company witnessed comparable sales growth of 12.9% during the quarter. Notably, the United States, Canada and Other International locations registered comparable sales increase of 12.6%, 10.6% and 17.7%, respectively.

Notably, operating income in the quarter increased 5.8% year over year to $1,340 million, while operating margin (as a percentage of total revenues) contracted 20 basis points to 3%.

Store Update

Costco currently operates 804 warehouses, comprising 558 in the United States and Puerto Rico, 103 in Canada, 39 in Mexico, 29 in the United Kingdom, 27 in Japan, 16 in Korea, 14 in Taiwan, 12 in Australia, three in Spain, and one each in Iceland, France, and China. The company did not open new stores during the quarter under review. Well, management plans to open 13 more net new units in the third and fourth quarter. Of these, five will be in the United States, three in Canada and five in overseas market.

Financial Aspects

Costco ended the reported quarter with cash and cash equivalents of $8,637 million and long-term debt (excluding current portion) of $7,522 million. The company’s shareholders’ equity was $15,652 million, excluding non-controlling interests of $477 million.

Management incurred capital expenditures of $573 million during the second quarter. The company intends to spend approximately $3-$3.2 billion in fiscal 2021.

Notably, shares of this Zacks Rank #3 (Hold) company have fallen 5.2% in the past six months against the industry’s growth of 7.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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