Costco Wholesale Corp.
) came out with second-quarter fiscal 2013 results today. The
quarterly earnings of $1.24 per share beat the Zacks Consensus
Estimate of $1.05, and surged 37.8% from 90 cents earned in the
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.
The quarterly earnings was favorably impacted by a tax benefit
of 14 cents a share in relation to the percentage of the special
cash dividend paid by Costco in Dec 2012 to 401(k) plan
The warehouse retailer's total revenue, which includes net
sales and membership fees, climbed 8.3% to $24,871 million from
the prior-year quarter, but fell short of the Zacks Consensus
Estimate of $25,109 million. Net sales jumped 8.2% to $24,343
million, whereas membership fees rose 15% to $528 million.
Costco's comparable-store sales for the quarter ascended 5%
buoyed by a 5% and a 6% 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 8%.
Excluding the effects of gasoline prices and foreign
currencies, the company witnessed comparable-store sales growth
of 5%, with U.S. sales increasing by an equivalent rate and
international sales rising 4%.
Recently, Costco came out with comparable-store sales data for
the month of February. After an increase of 4% in January,
Costco's comparable-store sales for February climbed 6%,
reflecting comparable sales growth of 6% at its U.S. locations
and 4% at international outlets. In the prior-year period, the
company delivered comparable-store sales growth of 8%.
Costco's operating income soared 14.6% to $738 million,
whereas operating margin (as a percentage of total revenue)
expanded marginally by 20 basis points to 3%.
Costco ended the quarter with cash and cash equivalents of
$4,413 million, long-term debt of $4,806 million, and
shareholders' equity of $10,112 million, excluding
non-controlling interests of $171
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.
Costco'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 currently operates 622 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, 9
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, Costco
holds a Zacks Rank #3 (Hold).
Another stock worth considering in the non-food
retail-wholesale sector is
Sears Holdings Corporation
), which carries a Zacks Rank #1 (Strong Buy).
COSTCO WHOLE CP (COST): Free Stock Analysis
SEARS HLDG CP (SHLD): Free Stock Analysis
TARGET CORP (TGT): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis
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