Costco (COST) Moves to Hold
COST opened 4% lower today, after the company’s second-quarter results missed estimates. EPS fell to $1.17, down from $1.24 in the same quarter last year, and well below analysts’ $1.36 estimate.
The biggest hit to earnings came from lower margins on gas than in the second quarter of last year, when oil prices were much lower. In addition, Costco sent out fewer coupon-type promotional mailers, instead, the company focused on advertising “everyday low prices.” Because that shift began a year ago, management expects its impact on year-over-year comparisons to abate next quarter.
Despite challenges to year-over-year comparisons, revenue grew 6%, to $29.8 billion, just a hair shy of analysts’ consensus estimate.
Costco also announced its first membership fee hike in five years, which will begin contributing to earnings later this year. Membership rolls continue to grow, and renewal rates remain over 90%.
COST opened about 4% lower this morning but has traded sideways since. I’ll put the stock on Hold today, but a rebound looks likely. Hold.