Costco Earnings: Positives and Negatives - TheStreet

Costco Earnings: Positives and Negatives

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Costco  (COST) - Get Report beat revenue and earnings expectations easily, but the stock fell a bit. The stock has had a huge run this year and while there were certainly positives on the earnings print, upside for the stock was clearly limited.

The stock fell 3.4% to $335 a share in post-market trading. It rebounded in the past few days after it participated in the nasty border market sell-off September has seen. But the stock, which is up almost 20% year-to-date, now trades at roughly 37 times forward earnings, the upper end of its 50-year valuation range. Low interest rates and an e-commerce-focused consumer staples company positioned perfectly for the stay-at-home environment have contributed to the multiple.

Here were the results against Wall Street expectations:

  • Revenue: $52.28B v. $52.1B (actual result: +12% year-over-year)
  • Same-Store-Sales: +11.4% +10.4% (Adjusted: +14%)
  • Operating Margin: 3.7% v. 3.2% (Last Year: 3.3%)
  • Earnings Per Share: $3.13 v. $2.85 (+26%)

E-commerce revenue grew 90% year-over-year, not a surprise, as consumers have been staying at home and spending online, which positions digitally-focused retailers like Costco particularly well. Strong e-commerce helped drive the results, but many analysts now wonder if newly acquired e-commerce customers have been pulled forward from later years, capping upside to these types of stocks.

Also, the strong operating margin expansion is certainly a welcomed site for investors, but management did note it enjoyed an $84 million pre-tax benefit, potentially watering down the quality of the earnings beat.

Management will give guidance and commentary on the earnings call. 

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