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Costco (COST) Q4 Earnings & Sales Beat Estimates, Up Y/Y

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Costco Wholesale Corporation (COST - Free Report) posted better-than-expected earnings and revenues in the fourth quarter of fiscal 2018. While this marks the company’s second straight bottom-line beat, revenues surpassed estimates for the sixth consecutive period. Notably, the top and the bottom line continued to register year over year improvement. The company also delivered comparable store sales (comps) growth across all regions. E-commerce sales during the period were also sturdy

However, shares of this operator of membership warehouses declined 2.4% in yesterday’s afterhours trading session. The downside may have been caused by dismal margins in the reported quarter. Nevertheless, strength in comps, propelled by strong membership trends, increasing penetration of e-commerce business and other growth-oriented efforts have been boosting investors’ optimism in this Zacks Rank #2 (Buy) stock. The company’s shares have rallied 11.1% in the past three months, almost at par with the industry’s rise. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


Q4 Earnings & Sales Picture

This Issaquah, WA-based company reported quarterly earnings of $2.36 per share that beat the Zacks Consensus Estimate by 2 cents. Moreover, quarterly earnings improved 13.5% from year-ago quarter’s figure of $2.08.

Total revenues, which include net sales and membership fee, came in at $44,414 million. The figure surpassed the consensus estimate of $44,053 million. The top line rose almost 5% from the prior-year quarter’s tally.

We noted that in the reported quarter, the company’s e-commerce comparable sales surged 26.2% year over year. Excluding the effect of gasoline prices and foreign exchange, the same depicted a rise of 26.3% year over year. This indicates that the company’s efforts to drive online sales bode well. With the prevailing trend of digital transformation in the sector, retailers are rapidly adopting the omni-channel mantra to provide a seamless shopping experience online and in stores. Costco, which shares space with Walmart (WMT - Free Report) , Amazon (AMZN - Free Report) and Target (TGT - Free Report) , is also following the same trend.

Costco Wholesale Corporation Price, Consensus and EPS Surprise



Delving Deeper

Net sales rose close to 5% to $43,414 million, while membership fee increased 5.7% to $997 million.

Costco’s comparable-store sales (comps) for the quarter improved 9.5% year over year. The company witnessed comps growth of 10.8%, 5.7% and 6.7% across the United States, Canada and Other International locations, respectively. Traffic or shopping frequency rose 4.9%, globally and in the United States. Average front-end transaction jumped 4.4% on a year-over-year basis. Excluding the impacts of foreign exchange and inflation, the company’s average ticket inched up more than 2%. Gas inflation benefitted comps by approximately 260 bps. However, cannibalization hurt comps by 55 basis points (bps). Further, we note that weakening U.S dollar dented sales by approximately 25 bps.

Excluding the effect of gasoline prices and foreign exchange, the company witnessed comps growth of 7.2% during the quarter with the United States, Canada and Other International registering comps growth of 7.8%, 4.6% and 6.9%, respectively.

Costco’s gross margin fell 35 basis points to 10.9%. Operating income in the quarter inched down close to 0.3% year over year to $1,446 million. However, operating margin (as a percentage of total revenues) contracted nearly 10 bps to 3.3%.

Store Update

At the end of the fourth quarter and fiscal 2018, Costco operated 762 warehouses, comprising 527 warehouses in the United States and Puerto Rico, 100 in Canada, 39 in Mexico, 28 in the U.K., 26 in Japan, 15 in Korea, 13 in Taiwan, 10 in Australia, two in Spain, one in Iceland and one in France. In fiscal 2019, the company plans to open more than 20 new warehouses. Majority of these openings will be carried out in the United states. The company also plans to relocate 4 units to improved locations.

Financial Aspects

Costco ended the quarter with cash and cash equivalents of $6,055 million and long-term debt (excluding current portion) of $6,487 million. The company’s shareholders’ equity was $12,799 million, excluding non-controlling interests of $304 million.

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