Stocks moved strongly higher Friday on rising expectations that the Republican tax bill will pass. The Dow Jones Industrial Average (DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) closed at record highs.
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Investors bid up stocks that would benefit the most from lower tax rates. Retailers tend to pay high taxes, and the SPDR S&P Retail ETF (NYSEMKT: XRT) rose 1.5%. The banking sector also outperformed; the SPDR S&P Bank ETF (NYSEMKT: KBE) gained 1.8%.
As for individual stocks, shares of Costco Wholesale (NASDAQ: COST) rose after the retailer reported a solid quarter, and Oracle (NYSE: ORCL) stumbled following surprisingly weak guidance.
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Costco's sales and profit gains
Retailer Costco reported results for the first quarter of fiscal 2018 that beat expectations, and investors boosted the stock price 3.3%. Revenue for the 12 weeks ended Nov. 26 grew 13.3% to $31.12 billion, and earnings per share rose 16.9% to $1.45. Adjusting for a one-time tax benefit, EPS came in at $1.36. Analysts had been expecting earnings of $1.34 per share.
Comparable sales grew a strong 10.5%, or 7.9% excluding gas inflation and currency effects. Comps in the U.S. grew 8.7% excluding gas inflation and currency, with 1.5 percentage points of that growth resulting from Thanksgiving weekend falling in the first quarter this year. Membership fees increased 9.8%, with over a third of the growth coming from fee increases. E-commerce sales grew over 40% and came to $1.3 billion in the quarter.
Costco seems to be hitting on all cylinders lately. Earlier this year, investors drove the stock price down over 15% on worry that the warehouse giant would be hurt along with other brick-and-mortar retailers as online buying grew, but sales growth numbers have looked very good the past two quarters. Costco members have continued to be loyal despite the membership fee increase in June, with the U.S. renewal rate holding steady at 90%.
The market is giving the company credit for good execution, with the stock up 29% from its low this summer.
Oracle's disappointing guidance
Software company Oracle reported expectation-beating results yesterday, but the market took the stock down 3.8% on fear that growth of the company's cloud business is slowing. Revenue for fiscal Q2 was up 6% to $9.63 billion and non-GAAP EPS grew 14% to $0.70. Analysts were expecting per-share earnings of $0.68 on sales of $9.57 billion.
Oracle's closely watched cloud business delivered the company's growth, increasing 43% in constant currency to $1.52 billion, or 16% of total revenue. The company's legacy on-premise software grew 1% to $6.31 billion, hardware sales fell 9%, and service revenue was flat.
What caught Wall Street's attention was guidance for Q3, given in the conference call. Cloud revenue is forecast to grow 21% to 25%, about half this quarter's rate. The guidance is for total revenue growth of 2% to 4% and non-GAAP EPS of $0.68 to $0.70, both below analyst expectations.
CEO Safra Catz said in the press release, "Our success in the quarter was based on the increasing scale and the gathering momentum in our cloud business. I expect the business to continue to grow and strengthen over the coming quarters."
The company talked up the upcoming release of its artificial intelligence-powered automated database, and again touted lower costs for running its database in thr cloud compared with Amazon Web Services. Oracle execs like to talk up the company's accomplishments in conference calls, but investors were only hearing the weak guidance today.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jim Crumly owns shares of AMZN and Costco Wholesale. The Motley Fool owns shares of and recommends AMZN. The Motley Fool owns shares of Oracle. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.