Costco Wholesale Corporation
(
COST
) reported better-than-expected first-quarter fiscal 2013 results
today. The quarterly earnings of 95 cents a share beat the Zacks
Consensus Estimate by a couple of cents, and surged 18.8% from 80
cents earned in the prior-year period.
The boost in the bottom line was buoyed by growth in the top
line due to rise in membership fees and improved sales of
discretionary items, as consumers seeking discounts started
flocking to warehouse clubs.
Let's Unveil
The warehouse retailer's total revenue, which includes net
sales and membership fee, climbed 9.6% to $23,715 million from
the prior-year quarter, but fell short of the Zacks Consensus
Estimate of $23,761 million. Net sales jumped 9.6% to $23,204
million, whereas membership fee rose 14.3% to $511 million.
Costco's comparable-store sales for the quarter ascended 7%
buoyed by a 7% and 9% jump in comparable-store sales in the U.S.
and international locations, respectively. The results were
favorably impacted by inflation in gasoline prices and foreign
currencies fluctuation. In the prior-year quarter, the company
delivered comparable-store sales growth of 10%.
Excluding the effects of gasoline prices and foreign
currencies, the company witnessed comparable-store sales growth
of 6%, with U.S. sales increasing by a similar rate and
international sales rising 7%.
Recently, Costco came out with comparable-store sales data for
the month of November. After an increase of 7% in October, the
company's comparable-store sales for November climbed 6%,
reflecting comparable sales growth of an equivalent percentage at
its U.S. locations and 7% at international outlets. In the
prior-year period, the company delivered comparable-store sales
growth of 9%.
Costco's operating income surged 17.7% to $639 million,
whereas, operating margin (as a percentage of total revenue)
expanded marginally by 20 basis points to 2.7%.
Financial Aspects
Costco ended the quarter with cash and cash equivalents of
$3,897 million, long-term debt of $1,366 million, and
shareholders' equity of $12,665 million, excluding
non-controlling interests of $167 million.
Let's Conclude
Costco continues to be a dominant retail wholesaler based on
the breadth and quality of the merchandises it offers. The
company's strategy to sell products at heavily discounted prices
has helped it sustain growth amidst 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, the company is well
positioned in the warehouse club industry. The company's
diversification strategy is a natural hedge against risks that
may arise in specific markets.
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.
Costco expects to open 1 new warehouse before December 31,
2012. It currently operates 621 warehouses, comprising 448
warehouses in the United States and Puerto Rico, 85 in Canada, 32
in Mexico, 23 in the United Kingdom, 13 in Japan, 9 in Taiwan, 8
in Korea and 3 in Australia.
Going by the pulse of the economy, we believe that
budget-constrained consumers will remain watchful of their
spending and look for discounts. Consequently, we could see more
competitive pricing, compelling products and innovative ways to
attract shoppers during this holiday season. 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.
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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