Costco Wholesale Corporation COST came out with second-quarter fiscal 2015 results, wherein adjusted earnings of $1.25 per share surged 19% from the prior-year quarter. Including the tax benefit with respect to February's special dividend and charge related to an income tax matter, quarterly earnings came in at $1.35 per share, up substantially from $1.05 in the year-ago quarter.
The reported earnings handily surpassed the Zacks Consensus Estimate of $1.17. This is the third straight quarter that Costco has outperformed the Zacks Consensus Estimate. In the first quarter of fiscal 2015 and fourth quarter of fiscal 2014, the company had registered a positive earnings surprise of 2.8% and 4%, respectively.
Let’s Unveil Further
The warehouse retailer’s total revenue, which includes net sales and membership fee, climbed 4.4% to $27.45 billion from the prior-year quarter, but fell short of the Zacks Consensus Estimate of $27.57 billion. Quarterly net sales rose 4.3% year over year to $26,872 million, whereas membership fee increased 5.8% to $582 million.
Costco’s comps for the quarter increased 2%, buoyed by an increase of 4% at the U.S. locations, partially offset by 2% decline at international outlets.
Excluding the effect of lower gasoline prices and foreign currencies, the company witnessed comps growth of 8% during the quarter, with U.S. and international comps registering an equivalent percentage increase.
For the February month comps grew 1%, reflecting an increase of 2% at the U.S. locations and flat comps at international outlets. Excluding the effect of lower gasoline prices and foreign currencies, the company witnessed comps growth of 8%, with U.S. and international comps registering an increase of 7% and 12%, respectively.
Costco’s operating income in the quarter under review rose 21.1% year over year to $877 million, whereas operating margin (as a percentage of total revenue) expanded 40 basis points to 3.2%.
Financial Aspects
Costco ended the quarter with cash and cash equivalents of $5,866 million and long-term debt of $3,830 million. The company’s shareholders’ equity was $10,206 million, excluding non-controlling interests of $219 million.
Let’s Conclude
Costco continues to be a dominant retail wholesaler based on the breadth and quality of the merchandise it offers. Its strategy to sell products at highly discounted prices has helped in sustaining growth amid soft economic conditions. Having delivered consistent comps growth, the company is well positioned in the warehouse club industry. Also, Costco’s diversification strategy is a natural hedge against risks that may arise in specific markets.
However, Costco faces stiff competition from Target Corp. TGT and Sam’s Club, a division of Wal-Mart Stores Inc. WMT that follow a similar business model which pushes through high volumes of merchandise at low prices in membership-only warehouse clubs. Thus, aggressive pricing to gain market share and drive traffic, amid stiff competition, may depress sales and margins.
Costco currently operates 671 warehouses, comprising 474 warehouses in the United States and Puerto Rico, 88 in Canada, 34 in Mexico, 26 in the United Kingdom, 20 in Japan, 11 in Korea, 10 in Taiwan, 7 in Australia and 1 in Spain.
Currently, Costco carries a Zacks Rank #3 (Hold). Another stock worth considering in the retail sector is Burlington Stores, Inc. BURL, which holds a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment