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Costco Stock Jumps On Q1 Earnings Beat, Cautions on Christmas Toy Shortages

Costco topped Street earnings forecasts, but noted that ongoing supply chain disruptions could limit the availability of some seasonal items over the holiday shopping period.

Costco Wholesale  (COST) - Get Costco Wholesale Corporation Report shares leapt higher Friday after the bulk discount retailer posted stronger-than-expected first quarter earnings while cautioning that supply chain disruptions could impact holiday season inventories.

Costco's overall revenue topped $50.3 billion, a tally that beat Street forecasts and helped produce a bottom line of $2.98 per share, even as profit margins narrowed amid inflation-related input costs. Membership fee income rose 9.9% from last year to $946 million

"There have been a variety of inflationary pressures that we and others are seeing from labor costs to freight costs, to higher demand, to container shortages and port delays, to increased demand on certain product categories, much of what you see and read out there," CFO Richard Galanti told investors on a conference call late Thursday. "Various shortages on everything from chips to oils and chemicals still supplied by facilities hit by the gulf storms a while back, higher commodities prices."

Supply chain disruptions, the retailer noted, could mean holiday delays for things like toys and clothes, although Galanti remained optimistic with respect to near-term improvements, even as he detailed time delays for import containers on the Pacific cost, many of which needed more than 50 days to be processed.

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"Virtually all departments are impacted," he told investors on the call. "In some instances, delayed inventory simply extends the season. An example might be lawn and garden and patio. As soon as the product arrives, it sells pretty quickly, but it may extend beyond the normal seasonal time."

"Toys and seasonal ... some inventory, in fact, won't make it before Christmas, but we've mitigated that as best as possible and feel pretty good about it," he noted. 

Costco shares were marked 5.65% higher in late-morning trading Friday to change hands at $553.90 each, a move that would nudge its year-to-date gain to around 44%.

"We continue to believe that Costco remains well positioned heading into 2022 as it should benefit from lower reliance on gross margin mix shift compared to other retailers with outsized 2021 discretionary growth; more exposure to higher-end consumers, where we believe spending tailwinds could remain stronger and potential upcoming membership fee raise catalyst," said BMO Capital Markets analyst Kelly Bania, who carries an 'outperform' rating with a $560 price target on the stock.

"We believe Costco will also benefit from the high inflationary environment as consumers recognize its extreme value," he added.