Why Costco Remains a Strong Contender in the Discount, Variety Stores Space

Costco Boosts Its Bottom Line despite Sluggish Sales

LONDON, UK / ACCESSWIRE / May 27, 2016 / ActiveWallSt.com initiated a post-earnings coverage of Costco Wholesale Corp. (NASDAQ: COST), following the company’s earnings release yesterday, on Wednesday, May 25, 2016. Costco reported its Q3 FY16 earnings results. For Q3 FY16, the Warehouse giant’s earnings rose 5.6% to earnings per share (EPS) of $1.24 from EPS of $1.17 in Q3 FY15, beating Thomson Reuters’ consensus estimate of $1.23 per share, while it increased.

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For the quarter ended May 8, 2016, net income attributable to Costco rose to $545 million as compared to $516 million from the year ago period. Revenue reached $26.77 billion, up 2.6 % on y-o-y basis, missing analysts’ estimate of $27.07 billion in revenue.

Costco’s performance in comparable-store sales (Comps) remained sluggish; Comps growth came flat for the U.S., increasing 1% in Canada, but dropping by 2% in its international business. Overall, the company’s comparable sales remained unchanged for Q3 FY16. Register for our free membership at:

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However, discounting the impact from lower gas prices and the strong U.S dollar, comps were up 3 % in the U.S., 8 % in Canada, and 3 % for its international business for Q3 FY16. In general, companywide comps were up 3 % for Q3 FY16, which was below analyst’s consensus for a 4.6 % growth.

Economic Factors Affecting Retail

Many of retailers have been hampered by sluggish demand in the U.S. Companies such as Macy’s Inc. (NYSE: M) and Target Corp. (NYSE: TGT) reported weak quarterly sales, citing weather conditions and tepid demand for apparel and electronics. Wal-Mart Stores Inc. (NYSE: WMT), which primarily caters to customers in lower-income bracket, reported better-than-expected results for its latest reported quarter.

Can Costco keep improving?

Although top-line growth remained sluggish, Costco managed to deliver improvement in earnings above expectation. Revenue from membership fees rose around 6%, which at $618 million is a minor portion of Costco’s total revenue. However, the high-margin of membership fees has a deep impact on overall profitability.

Costco has focused on expanding its store presence to drive sales higher. During Q3 FY16, the company added seven stores to its network; five in the U.S. and one store in both Taiwan and Japan respectively. With these new additions, the overall store count is above the 700-mark.

In addition, Costco has taken steps to improve its online presence acknowledging the impact of e-commerce on retail sales. A number of brick-and-mortar retailers have failed to adapt efficiently to the shifting market conditions amid an onslaught from online competitors. Costco, on the other hand, has embraced e-commerce. The company has opened local websites in U.S., the U.K., Canada, Taiwan, Mexico and Korea to complement its physical store in these markets.

Costco shares rose 1.4% to $144.54 in New York on Wednesday, May 25, 2016, prior to earnings announcement. Get our complimentary technical alerts by clicking on the link below:

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