Costco Wholesale Corporation (COST - Analyst Report) commenced fiscal 2015 on a strong note, delivering better-than-expected first-quarter results. The company posted earnings of $1.12 per share that surpassed the Zacks Consensus Estimate of $1.09 and rose 16.7% from 96 cents reported in the prior-year period. Impressive comparable-store sales (comps) performance aided bottom-line growth.
Let’s Unveil Further
The warehouse retailer’s total revenue, which includes net sales and membership fee, climbed 7.4% to $26,866 million from the prior-year quarter, and came ahead of the Zacks Consensus Estimate of $26,831 million. Quarterly net sales rose 7.4% year over year to $26,284 million, whereas membership fee increased 6% to $582 million.
Costco’s comps for the quarter increased 5%, buoyed by an increase of 6% at the U.S. locations and 1% at international outlets. In the year-ago quarter, the company delivered comps growth of 3%.
Excluding the effect of lower gasoline prices and foreign currencies, the company witnessed comps growth of 7%, with U.S. and international comps registering an equivalent percentage increase.
Costco’s operating income rose 15.3% year over year to $770 million, whereas operating margin (as a percentage of total revenue) expanded 20 basis points to 2.9%.
Financial Aspects
Costco ended the quarter with cash and cash equivalents of $5,969 million and long-term debt of $5,034 million. The company’s shareholders’ equity was $12,359 million, excluding non-controlling interests of $211 million.
Let’s Conclude
Costco continues to be a dominant retail wholesaler based on the breadth and quality of the merchandise it offers. Its strategy to sell products at highly discounted prices has helped in sustaining growth amid soft economic conditions. Having delivered consistent comps growth, the company is well positioned in the warehouse club industry. Also, Costco’s diversification strategy is a natural hedge against risks that may arise in specific markets.
However, Costco faces stiff competition from Target Corporation (TGT - Analyst Report) and Sam’s Club, a division of Wal-Mart Stores Inc. (WMT- Analyst Report) that follow a similar business model which pushes through high volumes of merchandise at low prices in membership-only warehouse clubs. Thus, aggressive pricing to gain market share and drive traffic, amid stiff competition, may depress sales and margins.
Costco currently operates 671 warehouses, comprising 474 warehouses in the United States and Puerto Rico, 88 in Canada, 34 in Mexico, 26 in the United Kingdom, 20 in Japan, 11 in Korea, 10 in Taiwan, 7 in Australia and 1 in Spain.
Currently, Costco carries a Zacks Rank #3 (Hold). Another stock worth considering in the retail sector is Dollar Tree, Inc. (DLTR - Analyst Report), which holds a Zacks Rank #2 (Buy).
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