Costco Beats by a Penny - Analyst Blog
May 24 2012 - 04:30AM
Zacks
Costco Wholesale
Corporation (COST) recently posted better-than-expected
third-quarter 2012 results. The quarterly earnings of 88 cents a
share beat the Zacks Consensus Estimate by a penny, and surged
20.5% from 73 cents earned in the prior-year period.
The increase in the bottom-line was
buoyed by a high-single digit growth in the top-line due to
improved sales of discretionary items, as consumers seeking
discounts started flocking to warehouse clubs.
Let’s Dig
Deep
The warehouse retailer’s total
revenue, which includes net sales and membership fee, climbed 8.2%
to $22,324 million from the prior-year quarter, and handily beat
the Zacks Consensus Estimate of $22,072 million. Net sales jumped
8.2% to $21,849 million, whereas membership fee rose 9.2% to $475
million.
Costco’s comparable-store sales for
the quarter rose 5%, reflecting a comparable sales increase of 5%
both at its U.S. locations and international divisions. The results
were favorably impacted by rising gasoline prices but adversely
affected by foreign currencies fluctuation.
Excluding the effects of gasoline
prices and foreign currencies, Costco’s comparable-store sales rose
5%, with U.S. comparable sales up 4%, while international
comparable sales were up 8%.
Costco’s operating income increased
12.1% to $623 million, whereas, operating margin (as a percentage
of total revenue) expanded marginally by 10 basis points to
2.8%.
Financial
Aspects
Costco ended the quarter with cash
and cash equivalents of $4,791 million, long-term debt of $1,373
million, and shareholders’ equity of $12,585 million, excluding
non-controlling interests of $598 million.
Let’s
Conclude
Costco continues to be a dominant
retail wholesaler based on the breadth and quality of merchandise
it offers. The company’s strategy to sell products at heavily
discounted prices has helped it to sustain growth in beleaguered
economic conditions as cash-strapped customers continue to reckon
Costco as a viable option for low-cost necessities. Having
delivered consistent comparable-store sales growth, Costco is
strongly positioned in the warehouse club industry.
However, Costco faces stiff
competition from Target Corporation (TGT) and
Sam’s Club, a division of Wal-Mart Stores Inc.
(WMT), which follows a similar business model that pushes through
high volumes of merchandise at low prices in membership-only
warehouse clubs. Thus, aggressive pricing to gain market share and
drive traffic amid stiff competition, may depress sales and
margins.
Based on the pulse of the economy,
we believe that budget-constrained consumers will remain watchful
on their spending and look for discounts. Consequently, we could
see competitive pricing, compelling products and innovative ways to
attract shoppers.
Currently, Costco operates 602
warehouses, including 435 in the United States and Puerto Rico, 82
in Canada, 32 in Mexico, 22 in the United Kingdom, 13 in Japan, 8
in Taiwan, 7 in Korea, and 3 in Australia.
Currently, we maintain our
long-term “Neutral” recommendation on the stock. Moreover, Costco
holds a Zacks #3 Rank that translates into a short-term “Hold”
rating, and correlates with our long-term view.
COSTCO WHOLE CP (COST): Free Stock Analysis Report
TARGET CORP (TGT): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
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