Time to start worrying about Costco
This great retail story isn't unraveling yet, but it's picking up some snags.
By Ethan Roberts
Costco (COST) reported second-quarter fiscal 2014 results Thursday morning, and Wall Street finally seems to be developing some skepticism of the warehousing giant and the stock.
Earnings came to $1.05 per share on revenue of $26.31 billion, both well under last year's figures of $1.24 per share on $24.87 billion in sales. Costco earnings also failed to meet Wall Street's expectations -- analysts were projecting profits of $1.17 per share and revenues of $26.65 billion.
Investors reacted by knocking the stock down by 2.3 percent in midday trading.
A Costco spokesman cited weaker sales and gross margin results in non-foods, weaker gross margins in fresh foods, and lower international profits due to a weakening of foreign exchange rates.
Margins are an especially sticky point with Costco given its much-ballyhooed practice of paying much more livable wages than the likes of Wal-Mart (WMT) and other competitors.
Same-store sales in the United States were up 4 percent, including gasoline sales. Backing out gas and negative currency exchange rates, same-store sales rose 5 percent, both domestically and overall.
Perhaps the most refreshing thing from the report: Weaker Costco earnings were not blamed on bad weather, as several other retailers have done recently.
It also was interesting that Costco did not publish any forward guidance. But, for the record, consensus estimates for the current quarter call for earnings of $1.14 per share on $25.92 billion in sales, and full-year expectations are for $4.84 per share on $112.84 billion in sales.
Perhaps the most disappointing thing about Thursday's report is the fact that COST stock is slowly losing its grasp on its role as one of the better retail stories of the past couple years.
Since the market lows of 2009, Costco shares have been on a roll. From March 2009 to November 2013, the stock rose nearly 280 percent.
However, revenue and gross profits were also down in the last quarter, so after several years of solid performance, this makes three quarters in a row that Coscto earnings have disappointed.
It would seem the Street is now saying, "Fool us once, shame on you. Fool us a few times, shame on us."
As you can see from the accompanying chart, Costco stock has bounced back recently after a sharp decline between December and February. The 200-day moving average is still rising; however, the 50-day has now crossed below the 200-day, which usually does not bode well for stock performance.
Also notice the increase in volume on recent down days. Meaningful support levels on the stock kick in around the $110 area, with the next lower support area around $105.
Another cautionary note for investors is the heavy and significant recent insider selling at Costco. Several different corporate executives sold shares of stock between October 2013 and January 2014 in the $116 to $124 price range. Most of these were direct sales on the open market, and not the automatic kind, nor simply option expirations.
Given the weaker earnings lately, it would appear that COST stock could easily begin to languish behind competitors such as Wal-Mart, Target (TGT) and even the dollar stores, such as Dollar Tree (DLTR) and Family Dollar (FDO).
Over the past year we have seen that following an earnings miss, it can take six or eight weeks for retailer stocks like TGT, DLTR and FDO to rebound. Therefore, I suggest that investors would do well to put COST stock on spring break for now and look for something better until after Easter.
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As of this writing, Ethan Roberts did not hold a position in any of the aforementioned securities.
Another example of the lazy writers we have in todays society.
"Earnings came to $1.05 per share on revenue of $26.31 billion, both well under last year's figures of $1.24 per share on $24.87 billion in sales."
$1.05 (this year) well under $1.24 (last year) - Check
26.31 billion (this year) well under 24.87 billion (last year).- HUH ?!?
Must be more of the $15.00/hour crowd who can't fulfill a drive through order properly, who have zero ability to read what they write. Probably too busy texting and doing social media on their phone while ATTEMPTING to do a job.
People are so busy at their shovel ready jobs they don't have time to go to Costco they been shoveling snow for months now.
One experience I had there, among others that were just OK:
I was going to buy a mattress there, but Costco has no service to transport it to my home nor to remove the old mattress, which is a major headache.
They do recommend services that will transport goods to your home at an extra charge, but the one I called did not respond (and I still would have had to figure out how to get rid of my old one)
So, I bought my new mattress elsewhere where transport, set up and removal of the old mattress were included--equivalent mattress at about the same price as Costco's.
In short, Costco may be a great place to shop for some, but not for me.
PS. Costco has NO Express lane for people who have just one or a few items--another reason I rarely shop there (aside from inconvenient locations).
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