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Key Takeaways From Costco's Q4 Earnings

Costco ( COST ) reported mixed Q4 fiscal 2016 earnings on Thursday, September 29. The company's retail revenue increased 2.1% year-over-year (y-o-y) to $35.7 billion during the quarter, which missed the Reuters consensus estimate by more than $1 billion. The retailer's overall revenues increased 2.2% to $36.5 billion, driven by incremental revenues from new stores and growth in membership fees. Although Costco's comparable sales growth for the fourth quarter was flat, it should be noted that a fall in gasoline prices and the strengthening dollar had a significant negative impact on the company's growth. Excluding this impact, Costco's comparable sales growth stood at 3%. The company's selling general and administrative expenses increased 5.6% y-o-y to $3.69 billion due to increased payroll expenses. Costco reported net earnings of $1.77 per share, a 2% y-o-y increase which beat the consensus estimates by 4 cents.

Costco's growth was once again driven by a consistent rise in its member base. Membership revenue grew 6% on a year-over-year basis to $832 million. The company boasts of strong renewal rates over fourth quarter at 90% in the U.S. and Canada and 88% worldwide, including increasing penetration of executive memberships as well.

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The flat comparable sales, including sales of gasoline during the quarter, were due to a 1% decline in the U.S., 2% growth in Canada and a 2% decline in the rest of the world. Excluding gasoline sales and currency translation effects, the combined comparable sales increased by 3% driven by 2% growth in U.S., a 5% rise in Canada and a 1% increase in other international sales. For the full year combined, comparable sales growth was also flat and sales excluding currency translation effects and gasoline were up by 4%.

The flat comparable sales, including sales of gasoline during the quarter, were due to a 1% decline in the U.S., 2% growth in Canada and a 2% decline in the rest of the world. Excluding gasoline sales and currency translation effects, the combined comparable sales increased by 3% driven by 2% growth in U.S., a 5% rise in Canada and a 1% increase in other international sales. For the full year combined, comparable sales growth was also flat and sales excluding currency translation effects and gasoline were up by 4%.

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In fiscal 2016, Costco added 29 new locations, which represented around 4.5% y-o-y increase in square footage. The company ended its fiscal year with 715 warehouses. The company also announced its plans to open nine more warehouses before the end of the calendar year.

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Updates On Citi Visa Anywhere Card

Costco stopped accepting American Express at all U.S. and Puerto Rico Costcos and on Costco.com, and began accepting Visa cards, including the new Citi Visa Anywhere card. Citi and Costco faced range of problems from delays in getting new cards to issues with automatic payments and long hold times for calls to customer service desks during the first few week after the cut over of American Express at the stores.

Costco is beating its initial expectations in terms of conversion, usage and new sign-ups to the card. Almost 11.4 million American Express cards were transferred over to Citi during the conversion process. According to the company, 85% of these cards have already been used in past 60 days. Also, 1.1 million members have applied for the new card and over 730,000 new accounts have been activated with a little over 1 million additional Citi Visa cards are in circulation.

Future Outlook

Costco did not publish any guidance for the upcoming earnings, but consensus estimates for the company's first quarter of fiscal 2017 expects earnings of $1.21 per share and revenues of $28.68 billion. For the full year fiscal 2017, reuters' compiled analyst estimates forecast revenues of $128.52 billion and earnings of $5.96 per share, implying growth of about 8% and 12%, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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