How Costco Beat Profit Estimates

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Costco Wholesale Corp. (NASDAQ: COST) reported fiscal 2017 third-quarter results after markets closed on Thursday. The big box club store posted quarterly diluted earnings per share (EPS) of $1.59 on revenue of $28.22 billion. In the same period a year ago, Costco reported EPS of $1.24 on revenue of $26.15 billion. Third-quarter results compare to the Thomson Reuters consensus estimates for EPS of $1.31 and $28.54 billion in revenue.

Net income of $700 million (versus $545 million in the year-ago quarter) was positively affected by an $82 million ($0.19 per diluted share) tax benefit in connection with the $7.00 per share special cash dividend announced on April 25, 2017.

Consolidated same-stores sales rose 5% year over year in the third quarter, with gains of 6% domestically, 2% in Canada, and 4% internationally. Excluding gasoline sales and currency exchange effects, consolidated same-store sales rose 5% with a rise of 5% in the United States, 3% in Canada, and 6% internationally.

Beginning June 1, primary Costco memberships will cost $60 and executive memberships will cost $120. The company said the fee increase will affect 35 million members, about half of whom pay for executive memberships.

The company’s profits are driven by membership fees. In the quarter, membership fees accounted for $644 million of Costco’s total revenues, up 4.2% year over year. For the fiscal year to date membership revenues is up $96 million/

Operating income rose by $110 million from $858 million to $968 million.

Merchandise costs rose by 7.8% to $24.97 billion and SG&A expenses were up by about 6.4% to $8.83 billion.

For the month of February, U.S. same-store sales rose 5%, 10% in Canada, and fell 2% in the rest of the world. Consolidated same-store sales rose 4% in February. Excluding sales of gasoline and foreign currency translation effects, U.S. sales rose 2%, Canadian sales rose 2%, and international sales fell 1%, yielding a combined year-over-year increase of 2%.

Pre-tax net income for the quarter rose from $835 million to $965 million.

The company did not publish any guidance, but consensus estimates for the company’s fourth fiscal quarter of 2017 call for EPS of $1.98 on revenues of $41.04 billion. For the full 2017 fiscal year, EPS is expected to come in at $5.64 on revenues of $127.43 billion.

Shares closed up about 1% on Thursday at $174.73 and traded up by about 1.6% in the after-hours session at $177.59. The stock’s 52-week range is $142.11 to $183.18. The consensus 12-month price target was $183.88 before results were announced. The high price target is $200.00.