Costco Wholesale Corporation
(
COST
) recently posted better-than-expected third-quarter 2012 results.
The quarterly earnings of 88 cents a share beat the Zacks Consensus
Estimate by a penny, and surged 20.5% from 73 cents earned in the
prior-year period.
The increase in the bottom-line was buoyed by a high-single
digit growth in the top-line due to improved sales of discretionary
items, as consumers seeking discounts started flocking to warehouse
clubs.
Let's Dig Deep
The warehouse retailer's total revenue, which includes net sales
and membership fee, climbed 8.2% to $22,324 million from the
prior-year quarter, and handily beat the Zacks Consensus Estimate
of $22,072 million. Net sales jumped 8.2% to $21,849 million,
whereas membership fee rose 9.2% to $475 million.
Costco's comparable-store sales for the quarter rose 5%,
reflecting a comparable sales increase of 5% both at its U.S.
locations and international divisions. The results were favorably
impacted by rising gasoline prices but adversely affected by
foreign currencies fluctuation.
Excluding the effects of gasoline prices and foreign currencies,
Costco's comparable-store sales rose 5%, with U.S. comparable sales
up 4%, while international comparable sales were up 8%.
Costco's operating income increased 12.1% to $623 million,
whereas, operating margin (as a percentage of total revenue)
expanded marginally by 10 basis points to 2.8%.
Financial Aspects
Costco ended the quarter with cash and cash equivalents of
$4,791 million, long-term debt of $1,373 million, and shareholders'
equity of $12,585 million, excluding non-controlling interests of
$598 million.
Let's Conclude
Costco continues to be a dominant retail wholesaler based on the
breadth and quality of merchandise it offers. The company's
strategy to sell products at heavily discounted prices has helped
it to sustain growth in beleaguered economic conditions as
cash-strapped customers continue to reckon Costco as a viable
option for low-cost necessities. Having delivered consistent
comparable-store sales growth, Costco is strongly positioned in the
warehouse club industry.
However, Costco faces stiff competition from
Target Corporation
(
TGT
) and Sam's Club, a division of
Wal-Mart Stores Inc.
(
WMT
), which follows a similar business model that 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.
Based on the pulse of the economy, we believe that
budget-constrained consumers will remain watchful on their spending
and look for discounts. Consequently, we could see competitive
pricing, compelling products and innovative ways to attract
shoppers.
Currently, Costco operates 602 warehouses, including 435 in the
United States and Puerto Rico, 82 in Canada, 32 in Mexico, 22 in
the United Kingdom, 13 in Japan, 8 in Taiwan, 7 in Korea, and 3 in
Australia.
Currently, we maintain our long-term "Neutral" recommendation on
the stock. Moreover, Costco holds a Zacks #3 Rank that translates
into a short-term "Hold" rating, and correlates with our long-term
view.
COSTCO WHOLE CP (COST): Free Stock Analysis
Report
TARGET CORP (TGT): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis
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