Costco Wholesale Corporation
) came out with better-than-expected fourth-quarter 2012 results
today. The quarterly earnings of $1.39 per share beat the Zacks
Consensus Estimate of $1.30, and surged 28.7% from $1.08 earned in
the prior-year period.
The boost in the bottom-line was buoyed by a double-digit growth
in the top-line due to improved sales of discretionary items, as
consumers seeking discounts started flocking to warehouse clubs,
and rise in membership fees.
The warehouse retailer's total revenue, which includes net sales
and membership fee, climbed 14.3% to $32,218 million from the
prior-year quarter, and surpassed the Zacks Consensus Estimate of
$31,902 million. Net sales jumped 14.3% to $31,524 million, whereas
membership fee rose 17.6% to $694 million.
Costco's comparable-store sales for the fourth quarter of fiscal
2012 ascended 5% buoyed by a 6% and 2% jump in comparable-store
sales in the U.S. and international locations, respectively. The
results were adversely impacted by inflation in gasoline prices and
foreign currencies fluctuation. In the prior-year quarter, the
company delivered comparable-store sales growth of 12%.
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
Recently, Costco came out with comparable-store sales data for
the month of September. After an ascension of 6% in August,
Costco's comparable-store sales for September climbed by an
equivalent percentage, reflecting comparable sales growth of 6% at
its U.S. locations and 7% at international outlets.
Costco's operating income surged 24.5% to $949 million, whereas,
operating margin (as a percentage of total revenue) expanded
marginally by 20 basis points to 2.9%.
Costco ended fiscal 2012 with cash and cash equivalents of
$3,528 million, long-term debt of $1,381 million, and shareholders'
equity of $12,361 million, excluding non-controlling interests of
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, Costco is well positioned in the
warehouse club industry.
A differentiated product range enables Costco to provide an
upscale shopping experience to its members, resulting in market
share gains and higher sales per square foot. Moreover, the company
continues to maintain a healthy membership renewal rate. Costco
also remains committed to opening new clubs in domestic and
international markets. The company's diversification strategy is a
natural hedge against risks that may arise in specific markets.
However, Costco faces stiff competition from
) and Sam's Club, a division of
Wal-Mart Stores Inc.
), 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
Costco expects to open 14 new warehouses before December 31,
2012. It currently operates 608 warehouses, comprising 439
warehouses in the United States and Puerto Rico, 82 in Canada, 32
in Mexico, 22 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. 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
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