Costco (NASDAQ: COST), a warehouse club that competes with BJ's Wholesale Club (NYSE: BJ) and Wal-Mart (NYSE: WMT), reported earnings for the second quarter on Wednesday. The company experienced a significant drop in the bottom line. Costco earned 54 cents per share on a diluted basis. That represented a decline of 26%. Analysts thought that 59 cents per share was doable. It wasn't. Net sales dropped 1%. Excluding gasoline and currency effects, same-store sales went up by 5% overall during the quarter (including those items, comps declined 3%).
Well, now, what does this tell us about Costco? It tells us that the whole thesis that people will be looking to save money by shopping at warehouse clubs doesn't necessarily translate into a successful earnings picture. Hey, what can you do? We're in a grand recession. And it's getting worse. Of course, it should be noted that Costco management must strive to work even harder to get people to spend more money in their stores. In fact, BJ's did pretty well with its numbers: Costco's competitor beat the analysts, even after adjustments.
As for the stock, Costco's shares closed on Wednesday at $40.81. The 52-week low is $40.15. I would not buy the stock here. I think the economy will worsen, I don't believe in the rally that we had yesterday (I don't think many people bought it, to be honest), and even though Costco might be a good long-term idea, I'm just sick of buying things at the wrong time. Too much of that going around. Costco needs to get its top line back on track, and it must get concessions from its suppliers. Won't be easy to do...
Disclosure: I don't own any company mentioned; positions can change without notice.
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