Costco Earnings Aren’t Enough Despite Strong Beat

When Costco Wholesale Corp. (NASDAQ: COST) reported its fiscal fourth-quarter financial results late on Friday, it said that it had $2.08 in earnings per share (EPS) and $42.3 billion in revenue. That compared with consensus estimates from Thomson Reuters calling for $2.02 in EPS and revenue of $41.55 billion. In the same period of last year, Costco posted EPS of $1.77 and $36.56 billion in revenue.

During the quarter, Costco reported companywide comparable sales of 6.1% (5.7% excluding gasoline), with e-commerce comps coming in at 21%. In terms of its segments the company reported:

• U.S. comparable sales were 6.5%, and 5.8% excluding gasoline.
• Canada comparable sales totaled 4.9%, and 4.8% excluding gasoline.
• Other International comparable sales were 5.6%, and 6.0% excluding gasoline.

Costco’s strongest department results were seen in lawn and garden, tires, toys and consumer electronics itself were up in high singles.

Membership fees were up 13.4% or $111 million year-over-year. However, as a percent of sales, they were down 5 basis points, as management expects in part due to strong sales results.

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In the conference call, Chief Financial Officer Richard Galanti commented on Costco memberships:

At year end, paid executive memberships totaled 18.5 million, an increase of 274,000 since third quarter end, which is about 16,000 per week increase in the quarter. Executive members are about 38% of our member base and about two-thirds of our sales. In terms of renewal rates, at year end, business members renewed at 94%, Gold Star members at 89.3%, these are numbers for the US and Canada combined, which is over 80% of our company and total US and Canada 90.0%, and worldwide, 87.2%, a slight tick down of a tenth or two from the last quarter.

On the books, Costco cash, cash equivalents and marketable securities totaled $5.78 billion at the end of the quarter, up from $4.73 billion in the same period of last year.

Costco ended its 2017 fiscal year with 741 warehouses in operation, including 514 in the United States.

Shares of Costco traded down 5.6% early Friday at $157.50. The consensus analyst price target is $181.41, and the 52-week range is $142.11 to $183.18.

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