Not even Costco Wholesale Corporation (Nasdaq: COST) could escape the difficult U.S. retail sales environment in the most recent quarter.
Despite a relatively strong performance throughout most of the year, investors were disappointed with Costco’s shrinking fiscal fourth-quarter margins.
Costco stock was down more than 6 percent on Friday, a day after the company reported quarterly earnings per share of $2.08 on revenue of $42.3 billion. Both numbers topped consensus analyst expectations of $2.02 and $41.5 billion, respectively.
Membership fees were up 13 percent on the quarter. Comparable-store sales were up 5.7 percent, ahead of analyst forecasts of 5.1 percent growth.
However, Costo reported a 15 basis point decline in gross margins, a number that did little to quell investor concerns about pricing pressures in the grocery business. Amazon.com ( AMZN) officially took control of grocery chain Whole Foods in August and immediately began lowering prices to put pressure on competitors.
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Costco is now expanding its home delivery service in an effort to keep pace with Amazon. Earlier this week, Wal-Mart Stores ( WMT) acquired logistics startup Parcel in an effort to expand same-day delivery in New York City.
Although Costco’s stock opened Friday’s session down, Wall Street analysts seem to think investors are overreacting to what was mostly a positive quarter.
“Although long-term uncertainties such as renewal rates from the recent membership fee price increase and the threat from Amazon remain a watchpoint, we maintain our ‘buy’ rating as current valuation provides modest downside protection,” Stifel analyst Mark Astrachan says.
Citi analyst Kate McShane is also keeping her “buy” rating for Costco stock and says the company has a number of competitive advantages that should insulate it from the competition.
“COST remains well-positioned to withstand competition given its low prices, experience in the grocery industry, the ‘treasure hunt’ aspect of shopping, COST’s ability to act as a one-stop shop for households, the draw of its ancillary businesses that cannot be replicated online, and its geographic diversification,” McShane says.
[See: 8 Luxury Retail Stocks Worth a Look.]
In addition to the “buy” rating, Stifel has a $173 price target for Costco stock.
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Slipping Margins a Worry for Costco Wholesale Corporation (COST) originally appeared on usnews.com
