Costco Same-Store Sales: What Wall Street's Saying

NEW YORK (TheStreet) -- Same-store sales at Costco Wholesale (COST) jumped 7% in August, beating expectations of a 4.63% gain, according to Consensus Metrix.

U.S. same-store sales also rose 7% last month and 6% for the quarter, which ended Aug. 31. Excluding gas and foreign exchange, Costco's same store sales rose 8% in August and 7% for the quarter. Total net sales for the month jumped 10% from last year to $8.8 billion.

Costco also reported net sales of $110.2 billion for its fiscal year, which also ended on Aug. 31, an increase of 7% year over year and in line with consensus estimates. The Issaquah, Wash.-based company reports fourth quarter earnings on Oct. 9.

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Shares were rising 1.9% to $123.61 on Thursday. Here's what analysts were saying.

Charles Grom, Sterne Agee (Buy; $129 PT)

Against its toughest compare of the balance of '14, Buy-Rated COST printed its best monthly SSS since Dec. '12 - a core of 7.8%. Not only was the print significantly ahead of our 5.0% view, but the step-up both sequentially (~360 bps) and vs. the trailing 12-month avg. (+5.8%) is indicative of a team that remains on its game despite a multi-year string of back-to-back winning seasons. Net, with the NFL season upon us, if this were a fantasy football draft, COST would be the #1 pick, in our view.

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Faye Landes, Cowen & Co. (Market Perform; $105 PT)

COST reported August total comps of 7%, well above consensus expectations of 4.9%. Traffic remained very strong, up "just over" 4.5% in August versus "just under" 4% last month and in June. Investors are likely to view these results very favorably as they further indicate how COST's successful formula continues to resonate with consumers. We are Market Perform on COST on valuation only.

David Trussell, Deutsche Bank (Buy; $128 PT)

We are raising our 4Q sales estimate by $230 million following Costco's impressive August performance, which included a total sales gain of 10% YOY, reported SSS of 7% and Core SSS of 7.7% (by our calculations). The month marks the best results in 2.5 years and signals top-line momentum, both domestically (up 6% core) and on an International basis (up 8% ex. FX), is picking up heading into Fiscal 2015. ... Our forecast for 5.5% core SSS was handily beat as Food & Sundries, Hardlines, and Softlines categories each experienced an acceleration in trends sequentially. Stronger sales will lead to less expense deleverage, in our view, driving our 4Q14 EPS higher by $0.03 to $1.53 from $1.50 previously (Street @ $1.51). In addition, with sales strength likely continuing into FY15 (we now forecast Core SSS of 5.2% up from 5.0%), our FY15 EPS now stands at $5.27 (above the Street's $5.14) driving our Price Target to $128 (on 23.5x CY15 EPS).

The combination of Gas and FX resulted in a ~75 bps drag on headline SSS up from a 35 bps drag last month and relative to our August forecast for an impact of 50 bps. Specifically, FX and gas impacted headline SSS by 50 and 25 bps, respectively, up from 25 and 10 bps in July. The average price per gallon of $3.52 was just below last year's $3.59.

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TheStreet Ratings team rates COSTCO WHOLESALE CORP as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate COSTCO WHOLESALE CORP (COST) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and growth in earnings per share. We feel these strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 4.6%. Since the same quarter one year prior, revenues slightly increased by 7.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Food & Staples Retailing industry average. The net income increased by 3.0% when compared to the same quarter one year prior, going from $459.00 million to $473.00 million.
  • Net operating cash flow has increased to $1,490.00 million or 10.45% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -13.14%.
  • The current debt-to-equity ratio, 0.42, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that COST's debt-to-equity ratio is low, the quick ratio, which is currently 0.57, displays a potential problem in covering short-term cash needs.
  • COSTCO WHOLESALE CORP's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, COSTCO WHOLESALE CORP increased its bottom line by earning $4.63 versus $3.90 in the prior year. For the next year, the market is expecting a contraction of 0.8% in earnings ($4.60 versus $4.63).

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--Written by Laurie Kulikowski in New York.

Follow @LKulikowski

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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