Costco's (COST) Q1 Earnings Beat, E-commerce Sales Surge
Costco Wholesale Corporation COST put up a stellar performance in first-quarter fiscal 2021, wherein both the top and the bottom lines not only beat the Zacks Consensus Estimate but also improved year over year. Notably, this operator of membership warehouses maintained its decent comparable sales run. The company’s e-commerce sales have also been showcasing strength owing to stay-at-home trend amid the ongoing pandemic.
Q1 Earnings & Sales Picture
Costco reported adjusted earnings of $2.29 per share — excluding tax benefits of 33 cents — that comfortably surpassed the Zacks Consensus Estimate of $2.04. This marked the second straight quarter of positive earnings surprise. Markedly, the bottom line improved sharply from adjusted earnings of $1.73 per share in the year-ago period. The prior-year adjusted figure excludes tax benefit of 17 cents related to stock-based compensation.
Total revenues, which include net sales and membership fee, were $43,208 million, up 16.7% from the prior-year quarter. The figure also outpaced the Zacks Consensus Estimate of $43,155 million.
Undoubtedly, Costco’s growth strategies, better price management, decent membership trends and increasing penetration of e-commerce business have been contributing to its performance. Thanks to its status of “essential retailer,” the company has been benefiting from coronavirus-induced spike in demand.
In the reported quarter, the company’s e-commerce comparable sales rose 86.4% year over year. Excluding the effect of gasoline prices and foreign exchange, the same exhibited an improvement of 86.2% year over year.
With the prevailing trend of digital transformation in the sector, retailers are rapidly adopting the omni-channel mantra to provide a seamless shopping experience, be it offline or online. Costco, which shares space with Dollar Tree DLTR, Dollar General DG and Target TGT, has been following the trend. Costco operates e-commerce sites in the United States, Canada, the U.K., Mexico, Korea, Taiwan, Japan and Australia.
Costco Wholesale Corporation Price, Consensus and EPS Surprise
Costco Wholesale Corporation price-consensus-eps-surprise-chart | Costco Wholesale Corporation Quote
Delving Deeper
Costco’s net sales grew 16.9% to $42,347 million, while membership fee increased 7.1% to $861 million in the reported quarter. Comparable sales climbed 15.4%, reflecting an improvement of 14.6%, 16.2% and 18.7% in the United States, Canada and Other International locations, respectively. We note that shopping frequency rose 5.5% globally and 7.6% in the United States.
Excluding the impact of foreign currency fluctuations and gasoline prices, the company witnessed comparable sales growth of 17.1% during the quarter. Notably, the United States, Canada and Other International locations registered comparable sales increase of 17%, 16.8% and 17.7%, respectively.
Notably, operating income in the quarter increased 34.8% year over year to $1,430 million, while operating margin (as a percentage of total revenues) expanded 40 basis points to 3.3%.
Store Update
Costco currently operates 803 warehouses, comprising 558 in the United States and Puerto Rico, 102 in Canada, 39 in Mexico, 29 in the United Kingdom, 27 in Japan, 16 in Korea, 14 in Taiwan, 12 in Australia, three in Spain, and one each in Iceland, France, and China. The company opened eight net new units during the quarter under review.
Financial Aspects
Costco ended the reported quarter with cash and cash equivalents of $13,590 million and long-term debt (excluding current portion) of $7,529 million. The company’s shareholders’ equity was $14,860 million, excluding non-controlling interests of $449 million.
Management incurred capital expenditures of $893 million during the first quarter. The company intends to spend approximately $3-$3.2 billion in fiscal 2021.
Notably, shares of this Zacks Rank #3 (Hold) company have rallied 26.9% so far this year compared with the industry’s rally of 21.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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