Costco Wholesale Corporation COST put up a stellar performance in fourth-quarter fiscal 2020, wherein both the top and the bottom line not only beat the Zacks Consensus Estimate but also grew year over year. Notably, this operator of membership warehouses maintained its decent comparable sales run. The company’s e-commerce sales have also been showcasing a sharp rise owing to widespread stay-at-home amid the pandemic.
Despite reporting better-than-expected results, shares of this Issaquah, WA-based company fell 2.5% during the after-market trading session on Sep 24. High incremental expenses related to COVID-19 perhaps raised investors' concerns. Well this was the second successive quarter of high pandemic-related costs for the company.
During the quarter under review, the company recorded incremental expenses related to COVID-19 premium wages and sanitation costs of $281 million pretax (or 47 cents a share) and a $36-million pretax charge (or 6 cents a share) related to the prepayment of $1.5 billion of debt. In the preceding quarter, the company’s additional COVID-19 related costs totaled $283 million pretax.
Q4 Earnings & Sales Picture
Costco reported fourth-quarter earnings of $3.13 per share that beat the Zacks Consensus Estimate of $2.85 and improved year over year. We note that the company had reported earnings of $2.47 per share — including negative impact of 22 cents related to a product tax assessment — in the year-ago period. Excluding the same, prior-year quarterly earnings came in at $2.69 per share.
Total revenues, which include net sales and membership fee, came in at $53,383 million, up 12.4% from the prior-year quarter. The figure also surpassed the Zacks Consensus Estimate of $52,467 million, following a miss in the preceding quarter.
Undoubtedly, Costco’s growth strategies, better price management, decent membership trends and increasing penetration of e-commerce business have been contributing to its performance. Thanks to its status of “essential retailers,” the company has been benefiting from coronavirus-induced spike in demand.
In the reported quarter, the company’s e-commerce comparable sales rose 90.6% year over year. Excluding the effect of gasoline prices and foreign exchange, the same exhibited an improvement of 91.3% year over year.
With the prevailing trend of digital transformation in the sector, retailers are rapidly adopting the omni-channel mantra to provide a seamless shopping experience, be it offline or online. Costco, which shares space with Dollar Tree DLTR, Dollar General DG and Target TGT, has been following the trend. Costco operates e-commerce sites in the United States, Canada, the United Kingdom, Mexico, Korea, Taiwan, Japan and Australia.
Costco’s net sales grew 12.5% to $52,277 million, while membership fee increased 5.3% to $1,106 million in the reported quarter. Comparable sales improved 11.4%, reflecting an increase of 11%, 9.1% and 16.1% year over year in the United States, Canada and Other International locations, respectively.
Excluding the impact of foreign currency fluctuations and gasoline prices, the company witnessed comparable sales growth of 14.1% during the quarter. Notably, the United States, Canada and Other International locations registered comparable sales growth of 13.6%, 12.6% and 18.8%, respectively.
We note that shopping frequency fell 1.2% globally but showed an increase of 1.2% in the United States. Average transaction improved 12.7% on a year-over-year basis.
Operating income in the quarter increased 31.9% year over year to $1,929 million, while operating margin (as a percentage of total revenues) expanded 50 basis points to 3.6%.
Costco currently operates 795 warehouses, comprising 552 in the United States and Puerto Rico, 101 in Canada, 39 in Mexico, 29 in the United Kingdom, 27 in Japan, 16 in Korea, 13 in Taiwan, 12 in Australia, three in Spain, and one each in Iceland, France, and China. The company opened eight net new units during the fourth quarter and 13 units in fiscal 2020. Management plans to open 23 units, including three relocations, in fiscal 2021.
Costco ended the reported quarter with cash and cash equivalents of $12,277 million and long-term debt (excluding current portion) of $7,514 million. The company’s shareholders’ equity was $18,284 million, excluding non-controlling interests of $421 million. Management incurred capital expenditures of $852 million during the fourth quarter and $2.8 billion in fiscal 2020. The company intends to spend approximately $3-$3.2 billion in fiscal 2021.
Notably, shares of this Zacks Rank #3 (Hold) company have rallied 17% in the past three months compared with the industry’s rise of 12.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Click to get this free report Target Corporation (TGT) : Free Stock Analysis Report Dollar Tree, Inc. (DLTR) : Free Stock Analysis Report Dollar General Corporation (DG) : Free Stock Analysis Report Costco Wholesale Corporation (COST) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research