Costco Wholesale Corporation (Nasdaq: COST) reported solid fiscal third-quarter growth numbers on Thursday afternoon, but modest revenue and earnings beats were not enough to keep shares from trading down more than 2 percent Friday morning. Despite the mixed quarter, analysts say Costco is well-positioned for the long term.
Costco reported third-quarter adjusted earnings per share of $1.70, beating consensus analyst estimates of $1.69. Third-quarter revenue of $31.62 billion also came in slightly below analyst expectations of $31.90 billion. Revenue was up 12 percent from a year ago.
[See: 10 Investing Themes to Remember for 2018.]
After adjusting for gas and inflation, Costco reported same-store sales growth of 7 percent on the quarter, exceeding consensus estimates of 5.4 percent growth.
Gross margins also declined to 11.05 percent, down from 11.5 percent a year ago. Retail investors are concerned that heavy investments in online sales and services such as same-day delivery and automated fulfillment centers will continue to eat into margins and profits in years ahead.
Costco’s U.S. same-store sales were up 7.7 percent on the quarter, and Canadian same-store sales were up 4.8 percent. Same-store sales for the remainder of Costco’s international business were up 5.8 percent.
Costco reported 36.8 percent e-commerce revenue growth, an important metric for grocery stocks in the Amazon.com ( AMZN) era. Online sales growth increased from just 28.5 percent in the fiscal second quarter.
Bank of America analyst Robert Ohmes says Costco will be a major beneficiary of the “discount store decade,” a long-term shift in consumer spending habits favoring discount stores as millennial shoppers take over the market. “We believe the value of COST membership will continue to drive same-store sales, membership growth and renewal rates,” he says.
[Read: 10 of the Best-Managed Public Companies.]
Ohmes says Costco should continue to benefit from Walmart ( WMT) closing 63 Sam’s Club locations earlier this year. In addition, he says margins will be supported by Costco’s private label products and its Visa ( V) co-branded credit card.
Bank of America has a “buy” rating and $230 price target for COST stock.
More from U.S. News
8 Great Investing Apps and Sites for Millennials
7 Robo Advisors With a Human Touch
11 Great Investing Tips for Women
Shrinking Costco Wholesale Corporation (COST) Margins Concern Investors originally appeared on usnews.com
