Costco Wholesale Corp. (COST) - Get Report shares traded lower Friday after the bulk-scale retailer's rising coronavirus expenses, including wage increases, took some of the shine off a strong fourth quarter earnings report that included record same-store sales growth.
Costco said earnings for the three months ending in August, the group's fiscal fourth quarter, were pegged at $3.04 per share, a 13% increase from the same period last year and well ahead of the Street consensus forecast of $2.85 per share. Group revenues, Costco said, rose 12.5% to $52.3 billion, while same-store sales rose by 11.4% -- the most in two decades -- as customers continue to favor large-scale retailers as they shop for stay-at-home items during the ongoing coronavirus pandemic.
Costco's pandemic-related costs, however, were also on the rise, topping $280 million for the quarter, compared to a $100 million forecast, linked largely to a $2 per hour premium paid to employees, which the company said equates to around $14 million per week.
"From a sales perspective, as indicated by our past three monthly sales releases, we've enjoyed strong sales results during the June, July, and August time frame," CFO Richard Galanti told investors on a conference call late Thursday. "Certainly, the sales strength starts with our being deemed essential, resulting in strong sales of fresh foods and foods and sundries, and health and beauty aids, and the like. We've also benefited from the much improved sales and products and items for the home outside of the food area."
"As people are spending less on travel, air and hotel and dining out, they seem to have redirected at least some of those dollars to categories like lawn and garden, furniture and mattresses, exercise equipment, bicycles, housewares, cookware, domestics, and the like," he added. "And lastly, a few of our ancillary businesses, notably our optical and hearing aid operations, were closed for 12 to 16 weeks and reopened during the mid-summer."
Costco shares were marked 2.2% lower in early trading Friday to change hands at $339.34 each, a move that would trim the stock's six-month gain to around 20%.
"Following another strong quarter from Costco, we see continued momentum for its unique business model, supported by incredible consistency in renewal rates, continued rising Executive penetration, and long-term benefits from the current environment," said BMO Capital Markets analyst Kelly Bania, who lifted her price target on the stock to $385 per share and reiterated her 'outperform' rating following last night's earnings.
"While Costco's comps have benefited from the favorable backdrop, EPS is generally in line with Costco's historical trends (+9% in F20) given its more steady, membership-fee based income stream," she added.