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Bull of the Day: Costco (COST)

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Based in Issaquah, Washington, Costco Wholesale COST is one of the largest warehouse club operators in the U.S., selling high volumes of food and general merchandise (including household products and appliances) at discounted prices through its membership program.

Q4 Earnings Recap

Revenue rose 17.5% year-over-year to $62.7 billion and EPS grew to $3.76 per share from $3.13 in the year-ago quarter. Both the top and bottom line easily beat consensus estimates of $61.4 billion and $3.58 per share.

Same-store sales spiked 15.5%, which helped drive Costco’s robust performance last quarter, and comparable e-commerce sales increased 11.2% year-over-year.

Additionally, the company’s app now has over 10 million downloads; COO Richard Galanti said that “it’s continually improving, with additional features coming soon.”

Membership fee revenue moved 11.7% higher to $1.23 billion, and Costco ended fiscal 2021 with 61.7 million paid member households. This represents 6.2% growth compared to 2020.

Costco did experience some margin pressure in its core merchandise categories in Q4—gross margin decreased by 0.32 percentage points year-over-year—but strong sales overall helped boost profit.

COST Breaks Out

Costco Wholesale Corporation Price and Consensus
Costco Wholesale Corporation Price and Consensus

Year-to-date, shares of COST have jumped 37.3%, which is above the S&P 500’s 24.7% increase. Earnings estimates have been rising too, and COST is a Zacks Rank #1 (Strong Buy) right now.

For fiscal 2022, 12 analysts have revised their bottom-line estimate upwards in the last 60 days, and the Zacks Consensus Estimate has moved up 58 cents to $12.15 per share. Earnings are expected to grow 9.7% compared to the prior year period. Fiscal 2023 looks strong too; seven analysts have upped their outlook and our consensus estimate has climbed 61 cents to $13.30 per share.

Despite its outstanding performance, not even Costco can escape supply chain and inflation challenges. Galanti explained on a call with analysts that “port delays, container shortages, COVID disruptions, shortages on various components, raw materials and ingredients, labor cost pressures, and [trucks] and driver shortages” all impacted its business.

However, Costco’s financial strength and strong balance sheet helped the retailer successfully navigate an extremely challenging operating environment, proving once again why investors are willing to pay a premium for COST stock.

If you’re an investor searching for a retail sector stock to add to your portfolio, make sure to keep COST on your shortlist.

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