Costco Falls Short Of Market Analysts' Q4 Predictions

By Sam Lewis

Bulk retailer still boasts growth despite naysayers

The fourth fiscal quarter showed slight favoritism toward Costco, as the company reported a one percent boost in sales along with a five percent increase in same store sales. However, it’s not all rainbows and butterflies for the king of bulk retailing, as both revenue and sales fell short of Wall Street’s estimates.

The quarter, ending Sept 1 brought Costco earnings of $617 million, or $1.40 per share, up from $609 million or $1.39 per share one year ago. FactSet analysts forecasted higher earnings, setting the bar at $1.46 per share, which, obviously, Costco did not meet. Revenue also grew for the warehouse retailer, as it reported $32.49 billion this quarter, against the $32.22 billion from the same time period of 2012. But again, Costco fell short of analysts’ expectations of $32.52 billion in revenue.

Costco’s brightest spot in its most recent financials is comparable-store sales. This is a key figure in gauging a retailer’s overall health, as it eliminates figures of stores recently opened and closed that can shed a positive or negative light on numbers. Costco’s comp-store sales rose five percent at its 454 U.S. locations and four percent in its 184 locations outside of domestic borders, versus the fourth-quarter of 2012, indicating the retailer is in fair shape.

Under the company’s discount model, the retailer gets smaller margins when shoppers buy products than when they become annual members. By selling an annual membership, Costco can reduce its markup — leaving retail prices closer to the cost to the retailer — on groceries, gas, and other merchandise. The cost of memberships offset the retail markup, and the more memberships the company sells, the better its profit margins will be. The high-margin aspect of Costco’s revenue jumped more than three percent, up to $716 million for the quarter. A year ago, the same figure stood at $694 million. But, again, despite the growth in membership fees, it still fell short of market analysts’ predictions.

Costco shouldn’t be too pessimistic about missing the forecasts of market analysts. The company has still managed to grow its business in an economy that has been slow to climb out of a recession. Many retailers have cut back annual earnings estimates due to subpar sales. If Costco continues to see growth in trying economic times, there is no reason to alter its business approach, which to some, would indicate a panic.