Costco (NASDAQ: COST), the shopping club that competes with BJ's (NYSE: BJ) and Wal-Mart (NYSE: WMT), reported earnings for the fourth quarter on Wednesday. Sales did well, rising 13% to $22.6 billion. On an adjusted basis, excluding a litigation charge, the bottom line came in at $0.92 per share, and according to this source, that is one penny below expectations. Excluding the effect of gasoline inflation, comparable sales increased 6%.
For the most part, I think Costco held up well during the quarter. Yes, the warehouse club didn't wow the Wall Street analysts this time around. But comps were pretty decent for the quarter, and the top-line performance was acceptable, all things considered. Membership-fee revenue went up by 22%, which was cool.
This doesn't mean that Costco won't have a tough time going forward. As the economy worsens (and it will), Costco is going to face intense competition for the attention of the consumer's cash and credit cards. Keep in mind, though, that Costco has some good brand equity when it comes to discount shopping. The company's image is of a place where people can buy in bulk and get great deals. In a bad market environment, consumers may flock to Costco to save money. So the company might do okay (on a very relative basis) during the crisis.
Of course, the stock is another thing. While I think the company's numbers might be decent, there's no guarantee that we won't get profit warnings and dismal comps reports later on, things that would get the stock punished. And keep in mind that the market for equities is awful overall (actually, I probably didn't need to write that out).
Looking at the AOL Finance snapshot taken at the time of this writing, I see that Costco's shares have performed poorly, like just about everything has, as of late. Year-to-date it's down almost 10%. Over the last month, the shares have shed over 16% of their value. If you're trading, those stats don't make the stock too tempting. Longer-term, Costco will do well, and if you wanted to do a little buying here to hold for a lengthy time period, you could. But remember that you will probably get lower prices later on. It's that kind of market.
Disclosure: I don't own any company mentioned; positions can change at any time.
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Reader Comments (Page 1 of 1)
10-08-2008 @ 6:45PM
Shelley said...
Just please remember to have an intelligent exit strategy from the start when you invest in Costco or in any stock or etf. Make sure its one that constantly is adjusting to the stock's behavior and overall market conditions. One that can help you keep your losses to a minimum but gives the stock sufficient breathing room as it begins to rise. http://www.smartstops.net
10-08-2008 @ 7:01PM
Robert Barr said...
As long as the economy continues to bleed from the eyes, there will be lines at Costco! http://blabrmouth.com