Costco (COST) Shares See Tepid Movement After Concluding Fiscal 2019
Costco COST reported fourth quarter results, concluding their fiscal 2019 on Thursday after the closing bell. The wholesale giant’s shares saw a tepid increase as the company is only up about 0.8% in intraday trading. The company’s shares have soared 42.8% year-to-date easily outpacing the broader wholesale market’s 16.4% gain. The company has posted some solid quarterly performances recently and was looking to report another to kick off Q3 earnings season. Let’s see how Costco performed in its final quarter of fiscal 2019 and where they might be headed in the near future.
Q4 Performance
For years, Costco has dominated the warehouse retail market, garnering a large following of loyal members who flock to Costco stores for the latest deals on almost any item imaginable. The firm has adapted to the changing retail landscape as well as adjusted to contemporary consumer preferences.
They have also been able to leverage their purchasing power to get the best prices from suppliers in order to maintain low prices on the goods they provide for their members. Having the high ground on suppliers has allowed them to be more resilient to rough macroeconomic climates than other retailers. With the ongoing trade war many investors have turned to companies like Costco who have the ability to mitigate rough market trends. Their latest fourth quarter results attest to this remarkable ability.
In Q4, Costco reported $47.5 billion in sales for a jump of 6.95%; earnings came in at $2.69 per share for a 13.98% hike. Earnings and revenue both beat our estimates by 5.91% and 0.8%, respectively. Costco membership fees contributed $1.05 million for a gain of 5.32% and store sales attributed $46.4 billion for a 7% jump from the year ago quarter.
The comparable sales growth that Costco put up in the quarter closed a good fiscal year for the retailer. Fiscal fourth-quarter comps rose 5.1% across the company as a whole and it continued its e-commerce growth campaign with an adjusted 21.9% rally in comp sales. US, Canada, and Other International comp sales made respective climbs of 5.2%, 4.7%, and 5% on an adjusted basis.
Moving Forward
Costco has started to make enhancements to its app in order to support its e-commerce business, allowing members to use their smartphones and other devices as digital membership cards. The app also provides gas prices and membership reward information, along with tools to help members manage prescriptions at Costco's pharmacies. Costco has also ventured into China where they are looking expand.
The membership-only retailer opened its first warehouse in China about two months ago, where overcrowding and traffic jams in the neighborhood forced the retailer to limit the number of shoppers in the store. Costco had record membership sign-ups in Shanghai, partly helped by its social media presence, with over 20,000 registered members. The company plans to open up a second store in early 2021, in Shanghai's Pudong neighborhood.
Looking to Q1, our current quarter consensus estimates expect Costco’s top line to grow 6.77% to $37.4 billion and for earnings to climb 6.21% to $1.71 per share. Comp sales for the company are expected to rise 4.32% with US and Canada stores making respective comp sales gains of 4.71% and 2.4%. Costco has beaten our earning estimates three out of the past four reported quarters with an average EPS surprise of 7.23%.
Takeaway
Costco continues to grow throughout its categories but some investors feel that growth is showing signs of slowing down. Membership fee revenue grew just over 5% but that segment is vital to the company’s bottom line; Costco typically slashes profit margin to extremely low levels in order to keep its members happy.
However, Costco’s presence in China should help the firm’s membership growth gain steam as they make their warehouses available to eager Chinese consumers. Costco sits at a Zacks Rank #3 (Hold).
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