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Costco Stock Gains On Q4 Earnings Beat, Will Limit Key Item Purchases Amid COVID Disruption

Costco said it will limit purchases of certain 'key' items in the months ahead amid what it called an "uptick in Delta-related demand" following solid fourth quarter earnings.

Costco Wholesale  (COST) - Get Costco Wholesale Corporation Report shares edged higher Friday after the big box retailer topped Wall Street forecasts for its fourth quarter earnings but noted it would begin limiting purchases of certain items owing to supply chain issues.

Costco's August quarter sales -- the final period of its fiscal year -- rose 17% from last year to a Street-beating $62.68 billion, while comparable sales rose by a better-than-expected 9.4%, paced by increases in Canada and the United States. Membership fees rose 11.7% to $1.234 billion, Costco said, with total members topping 61.7 million.

The group earned $3.76 per share for the period, up 23.7% from last year and well ahead of the Street consensus forecast, even as gross margins fell 32 basis points to 10.9% thanks to rising COVID and supply chain costs.

Looking into the final months of the calendar year, however, Costco said it needs to plan for product delays linked to both COVID and supply-chain disruptions that are adding to delivery times, as well as the global shortage in semiconductors.

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"[Suppliers] have got plenty of merchandise, but there's two- or three-week delays on getting it delivered because there's a limit on short-term changes to trucking and delivery needs," said CFO Richard Galanti. "So planning is crucial ... we're putting some limitations on key items, like bath tissues, roll towels, Kirkland Signature water, high-demand cleaning-related SKUs related to the uptick in Delta-related demand."

Costco shares were marked 1.7% higher in early trading Friday to change hands at $460.40 each, a move that would extend the stock's six-month gain to around 37%.

"We continue to see favorable catalysts in the coming quarters, including a potential membership hike and special dividend," said Oppenheimer analyst Rupesh Parikh, who carries an 'outperform' rating with a $500 price target on his "top pick" stock. 

"Nearer-term, we expect more of range-bound trade following the strong gains and uncertainty on the margin front," he added.