Costco
Inside the Numbers
In Q4, Costo reported earnings per share of $3.76, beating expectations of $3.59 per share. This was a 20.1% improvement from last year. Revenue also beat at $62.7 billion vs $61.6 billion an increase of 17.4% from last year. E-commerce sales also grew by 11.2%.
Its comparable sales growth also came in better than expectations at 15.5% vs 13.5%. However, this was a deceleration from the previous quarter. This is considered a better measure of the company's performance as it includes warehouse and e-commerce segments that have been operating for more than a year.
Costco's renewal rate came in at 0.3% growth. The renewal rate is considered important because the bulk of Costco's earnings are derived from its member fees. Overall, fee income increased from $1.2 billion to $1.1 billion a year ago.
While these results were impressive, it's also clear that the company is going to face some headwinds which could be picking up in force in the next few months. Like many retailers, there is concern about a worsening outlook for consumer spending with the stimulus expiring and doubts about the infrastructure bill and reconciliation package being passed in Congress.
Then, there are the inflation and supply chain issues which are interconnected in some ways. The company's estimate of price increases has sharply increased over the last 3 quarters - from 1% to between 3.5% and 4.5%. The other issue is with transit with the most notable example being shipping costs rising 500% over the last year. The company is adapting by increasing lead times for ordering and securing its own ships.
Stock Price Outlook
The worsening consumer spending outlook and supply chain challenges could negatively impact Costco in the near-term but in the long-term, it will be an opportunity to increase market share and increase margins as Costco is one of the best-positioned to thrive in such circumstances.
Therefore, investors should look to buy Costco on weakness but wait for a bigger pullback.
