Warehouse club Costco posted higher revenues but lower profits for its more recent quarter.
Now the question is, which part of Costco's results – higher sales or higher costs – is telling us something about the current state of the economy?
Compared to the same time last year, Costco's sales during the second quarter (which ended in mid-February) were up 6% to $25.76 billion. On a same-store basis, sales were up 4% in the US but flat for stores in the seven other countries where it operates.
But, Costco also reported what same-store sales are after "excluding negative impacts from gasoline price deflation and foreign exchange": up 5% in the US and up 7% for its international stores. Gas prices and exchange rate volatility took its toll on Costco.
Meanwhile, Costco's profits took a hit. Its operating profit of $724 million was 2% lower than last year and net income was down 15% to $463 million. CFO Richard Galanti noted that last year's net income was helped by a $62 million tax benefit thanks to a special cash dividend to its 401(k) plan participants.
Yet that wasn't enough of an explanation for the disparity, the company acknowledges. Weaker sales and bigger discounts on its non-food items during the shorter holiday season as well as lower margins with fresh foods also cut into Costco's profits.
CNBC contributor Gina Sanchez, founder of Chantico Global, believes Costco's results are more than just about Costco.
"What Costco is telling us is more about the economic environment and less about what's happening in Costco," says Sanchez, who believes the company has a "fantastic" business model and is performing better than competitor Wal-Mart's Sam's Club.
"Generally, what [Costco] had is some soft growth," says Sanchez. "That you've seen in the retail space generally. This has been a rough winter. It will probably recoup itself as we get into the better weather months of spring and summer."
Despite this rough patch, Sanchez remains positive on Costco. "I think Costco has quite a bright future," says Sanchez. "I've said it before and I'll say it again."
Steven Pytlar, Chief Equity Strategist at Prime Executions, thinks Costco's charts are pointing to a bright future as well, if not from the fundamentals, then at least from the technicals.
And, the stock is nearing a very important support level from which it has bounced several times over the last nine months: $110 per share. On Thursday, the share price fell as low as $112.37 after the earnings data were released.
"The charts look very strong," says Pytlar. "What we see in Costco is that since June, it's been very volatile; we've had a lot of big gains and a lot of big drops. But, the one constant is that at $110, the stock bottoms. We see very strong movement up from that level."
Pytlar says $110 per share indicates a "value level" where investors believe the stock is so cheap they have to buy it up, hence the three bounces since the summer of 2013 from that price.
"What hitting $110 over and over again like it has since June tells us is that it is under accumulation," says Pytlar. He believes that's where a large buyer or buyers jump in to take on big positions. Later, when the company's performance shows positive signs, there are fewer stocks to buy because of those buyers.
"That large position means there's less stock available in the market," says Pytlar. "It means that buyers are going to have to pay up for the stock and that accumulation is what tells us that the stock should continue higher."
To see the full discussion on Costco with Sanchez on the fundamentals and Pytlar on the technicals, watch the video above.
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