Costco Wholesale Corp. (COST) - Get Costco Wholesale Corporation Report shares edged lower Friday after the discount hypermarket posted softer-than-expected fourth quarter sales that offset solid earnings and membership growth.
Costco said diluted earnings for the three months ending on September 1, the company's fiscal fourth quarter, came in a $2.47 per share, up 4.6% from the same period last year. Stripping away 22 cent tax-related charge, which the company disputes, earnings were pegged at $2.69 per share, well ahead of the Street consensus forecast of $2.56. Group revenues, Costco said, rose 7% to $47.5 billion, but fell just shy of analysts' forecasts of a $47.7 billion tally.
Costco said comparable sales rose 5.1%, missing the Refinitiv forecast of 5.25%, but membership renewal rates in both the U.S. and Canada (90.9%) and in markets around the world (88.4%) continued to trend near record highs. Costco is also planning to open a second outlet in Shanghai, where it has 20,000 registered members, and said it was working to mitigate the impact of import tariffs linked to the U.S.-China trade dispute.
"Since the beginning of these tariffs over a year ago, we continue to be active in managing and we're possibly mitigating the impact where we can" CFO Richard Galanti told investors on a conference call late Thursday. " In some cases, we've reduced our commitments on certain items. And again, just on the impact of what we expect, we look at alternative country sourcing where possible and feasible and although again, there's a limited amount of that ability to do that."
"And we've taken advantage of lower pricing on certain -- on a few U.S. items that have not been impacted the other way," he added. "The exchange rate, by the way, between our two countries has helped a little bit."
Costco shares were marked 0.35% lower at the start of trading Friday to change hands at $288.00 each, a move that would still leave the stock with a healthy year-to-date gain of around 39%.
"Costco also maintains ample runway for growth in the U.S. (12+ clubs/year in the U.S. expected) as well as International, where new countries, such as China, are surpassing expectations," said BMO Capital Markets analyst Kelly Bania, who boosted her price target on the group to $320 per share and carries and "outperform" rating on the stock.
"We believe Costco remains in the early stages of widening its competitive moat with a deeper digital relationship with its membership base, supporting an outlook for its advantaged e-commerce business model," Bania added.