Costco Shares Fall Despite Strong Earnings Report. Is it a Buy?

Author: Tim Phillips

September 25, 2020

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Costco Wholesale Corporation (NASDAQ: COST) reported a solid set of quarterly earnings but still saw shares fall over 2% in after-hours trading.

Tim’s Take:

Costco’s sales growth was impressive in the fiscal fourth quarter (for the three months ended 30 August 2020). 

The discount retailer saw sales rise 12.5% year-on-year to US$52.3 billion versus the US$46.5 billion in the year-ago quarter. 

Costco has been great at keeping its customers sticky. That’s because its “paid membership” model grants access to wholesale prices for consumers.

That has made its 795 monster “warehouses” worldwide a hit with consumers. Nearly all of them are in North America but the company also has a decent presence in the UK, Japan and South Korea.

Its earnings per share (EPS) of US$3.13 comfortably beat consensus analyst expectations of US$2.85. 

More impressively, same-store sales climbed 11.4% during the quarter – showing how important the retailer has been to the majority of Americans during the Covid-19 pandemic.

Slow but steady growth

E-commerce revenue climbed a whopping 91.3% year-on-year. Allowing members to order online and pick up purchases in-store has become de rigueur for retailers of all stripes. Costco has been no exception.

The company continues to be an extraordinarily sound business, as its most recent 5.3% increase (to US$1.11 billion) in paid memberships attests to.

However, more recently Costco’s refusal so far to implement “curbside pickup” has been making headlines. 

This has been rolled out by a wide range of retailers – particularly those focused on groceries such as Walmart Inc (NYSE: WMT) – where customers drive to the location, wait in their car and have the items brought to them. That’s all done without ever having to set foot in store.

So far, Costco hasn’t shown any interest in it given the logistical reshuffling of space required. For investors, though, it’s one trend to watch as consumers become accustomed to new ways of shopping in a post-pandemic world.

Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of Costco Wholesale Corporation.

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About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.