Does Costco Deserve More Credit for Q1 Earnings?

Chris Lange

When Costco Wholesale Corp. (NASDAQ: COST) reported its fiscal first-quarter financial results after the markets closed on Thursday, the retailer said that it had $1.90 in earnings per share (EPS) and $37.04 billion in revenue. The consensus estimates had called for $1.71 in EPS and $37.25 billion in revenue. The same period of last year reportedly had $1.73 in EPS and $35.07 billion in revenue.

During the latest quarter, net sales increased 5.6% year over year while membership fees increased 6.1%.

Comparable sales increased 4.3% on a companywide basis, driven by: U.S. comparable sales increasing 4.7%; Canada comparable sales increasing 2.9%; other international comparable sales increasing 3.2%; and e-commerce comparable sales increased 5.5%.

On the conference call, Richard Galanti, Costco executive vice president, chief financial officer and director, commented:

In terms of Q1 comp sales metrics, first quarter traffic or shopping frequency increased 3.4% worldwide, and 3.1% in the U.S. This again includes the impact of the Thanksgiving holiday shift. Weakening foreign currencies relative to the U.S. dollar negatively impacted sales by approximately 30 basis points, and gasoline price deflation negatively impacted sales by approximately 40 basis points. Our average transaction or ticket was up 0.9% during the quarter, including the negative impacts of gas deflation, FX and the holiday shift.

A few of the stronger departments in this quarter in terms of sales were home furnishings, domestics, tires and pharmacy.

Earlier this week, Costco launched its Japan e-commerce site, with its Australia site planned to open in the first half of calendar 2020.

Shares of Costco traded down nearly 2% early Friday to $291.66, in a 52-week range of $189.51 to $307.34. The consensus price target is $305.17.