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Costco's (COST) Q3 Earnings Top Estimates, Online Sales Up Y/Y

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Costco Wholesale Corporation (COST - Free Report) reported solid third-quarter fiscal 2021 results, wherein both the top and the bottom lines note only beat the Zacks Consensus Estimate but also improved from the prior-year period. Notably, this operator of membership warehouses maintained its decent comparable sales run. The company’s e-commerce sales have also been showcasing strength.

Easing pandemic-induced restrictions, mass inoculation drive and massive stimulus package have triggered spending across the board. Clearly, demand was not restricted to a few categories as was noticed when the coronavirus crisis gripped the economy. Costco has been witnessing strength in its non-food business, rebounding from last year's lows. Additionally, the company’s travel business is also showing signs of improvement.

Notably, shares of this Zacks Rank #3 (Hold) company have gained 17.1% in the past three months compared with the industry’s growth of 12.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Q3 Earnings & Sales Picture

Costco posted quarterly earnings of $2.75 per share, which included 9 cents in COVID-19 related costs, primarily from $2 per hour premium pay. Impressively, the figure handily beat the Zacks Consensus Estimate of $2.29 and meaningfully increased from $1.89 per share reported in the year-ago quarter. This year-over-year increase in bottom line can be attributed to higher revenues.

Total revenues, which include net sales and membership fee, were $45,277 million, up 21.5% from the prior-year quarter. The figure also outperformed the Zacks Consensus Estimate of $45,202 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. In the reported quarter, the company’s e-commerce comparable sales rose 41.2% year over year. Excluding the effect of gasoline prices and foreign exchange, the same exhibited an improvement of 38.2% year over year.

Costco informed that categories such as jewelry, home furnishings, sporting goods, hardware and majors, which includes everything from appliances to consumer electronics were strong.

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, Dollar General (DG - Free Report) and Target TGT, 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 21.7% to $44,376 million, while membership fees increased 10.6% to $901 million in the reported quarter. Comparable sales climbed 20.6%, reflecting an improvement of 18.2%, 32.3% and 22.9% in the United States, Canada and Other International locations, respectively. We note that shopping frequency rose 12.5% globally and 11.9% in the United States. Average transaction or ticket was up 7.3% globally and 5.7% in the United States.

Excluding the impact of foreign currency fluctuations and gasoline prices, the company witnessed comparable sales growth of 15.1% during the quarter. Notably, the United States, Canada and Other International locations registered comparable sales increase of 15.2%, 16.7% and 13.1%, respectively.

Notably, operating income in the quarter increased 41.1% year over year to $1,663 million, while operating margin (as a percentage of total revenues) expanded 50 basis points to 3.7%.

Store Update

Costco currently operates 809 warehouses, comprising 559 in the United States and Puerto Rico, 105 in Canada, 39 in Mexico, 29 in the U.K., 29 in Japan, 16 in Korea, 14 in Taiwan, 12 in Australia, three in Spain, and one each in Iceland, France, and China.

During the quarter, the company opened six new warehouses — one in the United States, three in Canada and two internationally. The company plans to open seven additional warehouses in the final quarter — five in the United States and two internationally. Management intends to open roughly 21 net new warehouses in fiscal 2021.

Financial Aspects

Costco ended the reported quarter with cash and cash equivalents of $10,226 million and long-term debt (excluding current portion) of $7,495 million. The company’s shareholders’ equity was $16,482 million, excluding non-controlling interests of $492 million.

Management incurred capital expenditures of $1.03 billion during the quarter. The company intends to spend approximately $3.3-$3.5 billion in fiscal 2021.

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