Costco’s Solid Earnings: What to Watch Going Forward

Costco shares rose marginally after beating estimates on both the top and bottom lines. With no guidance, investors were likely weighing two key comments management made on the report.

The stock rose 0.23% to $316.50 a share in postmarked trading Thursday. Initially, the stock was up more than 1%.

Here were the results:

Net sales: $38.26 billion v. estimates of $38.210 billion

Operating margin: 3.2%, roughly in line with expectations

EPS: $2.10 v. $2.06

The stock had gained 8% for the year heading into earnings, crushing the broader market, which has lost 6% on the year. The stock is now trading at a historically expensive 38-times forward earnings, as the company grows same-store sales and opens new stores aggressively, on the back of what an analyst called a “best-in-class” customer loyalty program.

But baked into the results were two key items, according to management.

First off, “a later-than-usual Thanksgiving bled into the quarter ended February, That supported revenue. Also, Costco said, the coronavirus created added demand.

JPMorgan analyst Christopher Horvers had written in a pre-earnings note that he raised his quarterly revenue estimates because of “the surge in pantry loading as coronavirus impacts the U.S. consumer psyche.”

With no guidance on the earnings print, investors were left — and are left — to wonder how much of which key item management mentioned was driving the strong results.