All posts from solzberg
solzberg in Gainers & Losers,

Costco - medium-term goal is $170

Costco Wholesale, a US-based operator of wholesale membership warehouses, issued a decent October sales results, with net revenues up 1% y-o-y to $8.78 bn. Comparable sales declined 1% in the reported month, however, excluding effects of lower gasoline prices and adverse currency fluctuations, comps grew 5%, with US, Canada and other international comps registering an increase of 4%, 10% and 4%, respectively.

Costco currently operates 690 warehouses, including 482 in the United States and Puerto Rico, 90 in Canada, 36 in Mexico, 27 in the United Kingdom, 23 in Japan, 12 in Korea, 11 in Taiwan, seven in Australia and two in Spain. However, despite headwinds from lower gas prices and a strong US dollar, the company foresees growth opportunities in the US, Asia and Canada and wants to utilize this in order to expand its customer base. Costco plans to open 32 stores over the next 12 months, 13 of which will be built outside the US.

Costco’s financials for its fiscal 2015 fourth quarter ended August 30, were solid. Net sales increased 0.7% y-o-y to $34.99 bn, while membership fee climbed 2.2% to $785 mn. The company’s operating income rose 6% to $1.16 bn, and operating margin improved 10 basis points to 3.6%. Earnings per share jumped 9.5 y-o-y to $1.73 and surpassed consensus estimate of $1.66. The company is also gradually expanding its e-commerce capabilities in the US, Canada, UK and Mexico. Its e-commerce sales increased 20% in fiscal 2015.

My outlook for Costco remains optimistic. The company’s strategy to sell products at highly discounted prices has helped in sustaining growth amid soft economic conditions as cash-strapped customers continue to reckon Costco as a viable option for low-cost necessities. Costco also expects increased buying activity during the upcoming holiday season.

Recently, Costco’s shares hit a lifetime high. I expect the stock to continue growth after a period of consolidation, with the medium-term goal of $170..