Costco Beats On Earnings, But Revenue Falls Short
Taking a Look at Costco's (COST) Earnings Results.
Net Sales Performance
Quarterly Increase: Sales rose by 5.7% to $57.33B from $54.24B in the previous year.
24-Week Performance: Sales saw a 5.9% increase to $114.05B from $107.68B last year.
Impact of Fiscal Calendar Shift: Sales were negatively impacted by approximately 1.5% for the quarter and 0.5% for the first 24 weeks due to last year's fifty-third week.
Comparable Sales Data (YoY)
Adjustments: Figures exclude impacts from changes in gasoline prices and foreign exchange.
Second Quarter:
U.S.: 4.3% (Adjusted: 4.8%)
Canada: 9.2% (Adjusted: 9.0%)
Other International: 8.6% (Adjusted: 8.2%)
Total Company: 5.6% (Adjusted: 5.8%)
E-commerce: 18.4% (Adjusted: 18.2%)
First 24 Weeks:
U.S.: 3.1% (Adjusted: 3.7%)
Canada: 7.8% (Adjusted: 8.6%)
Other International: 9.8% (Adjusted: 7.7%)
Total Company: 4.7% (Adjusted: 4.8%)
E-commerce: 12.2% (Adjusted: 12.0%)
Net Income
Quarter: $1.7B ($3.92 per diluted share), up from $1.4B ($3.30 per diluted share) last year, including a tax benefit of $94M due to a special dividend.
First 24 Weeks: Net income was $3.3B ($7.49 per diluted share), compared to $2.83B ($6.37 per diluted share) last year.
February Sales Report
4-Week Net Sales: Increased by 6.9% to $18.21B.
First 26 Weeks Net Sales: Grew by 6.1% to $123.15B.
Comparable Sales for 4 and 26 Weeks: Adjusted figures show growth across the U.S., Canada, and Other International markets, with e-commerce also seeing significant gains.
Operational Footprint
Costco operates 875 warehouses globally, including in the United States, Puerto Rico, Canada, and various international locations. E-commerce sites are operational in multiple regions, underscoring Costco's broad market presence and digital sales capabilities.
My Take
COST's recent quarterly performance certainly wasn't lacking, as the company surpassed earnings projections but slightly missed on revenue expectations. Despite these generally positive results, the stock took a hit post-earnings announcement. This reaction from Wall Street seems to stem not just from the mixed financials, but also from additional concerns, including a significant slowdown in e-commerce growth among others. This downturn, following an earnings report that largely exceeded expectations, suggests investor sentiment was swayed by a complex mix of factors beyond just the headline numbers. Here are several factors that contributed to this market reaction:
Slight Miss in Revenue Expectations: Although COST's revenue and earnings for the quarter were up from the previous year, the company slightly missed the revenue expectations set by analysts. This slight miss, in the context of COST's otherwise strong performance, may have influenced investor sentiment​​.
Concerns Over E-commerce Sales Growth: A significant concern for investors was the noticeable slowdown in e-commerce sales growth. While online sales growth was still positive, it was significantly lower than the explosive growth seen in previous quarters, particularly during the height of the pandemic. This deceleration in one of COST's previously booming segments may have raised questions about future growth prospects in a post-pandemic environment​​.
Market Overreaction: I view the drop in COST's stock price as a market overreaction. Given the company's long-term growth trajectory and its ability to beat earnings and revenue estimates, the dip in stock price might be seen as a temporary setback rather than a fundamental issue with the company's business model or operational efficiency​​.
Ultimately, this quarter was not a concern to me and will continue to hold COST in my portfolio. This drop in the stock price could be looked at as a buying opportunity to patient long-term investors.
