For Costco, Patience Brings Rewards

Costco Wholesale Corporation COST reported better than feared Q4 results, with the metric mostly in line with expectations.

UBS’ Michael Lasser maintained a Buy rating on the company, with a price target of $180.

Costco reported its EPS for Q4 at $1.77, marginally ahead of the estimate and the consensus, with a lower than anticipated tax rate adding $0.05 to the EPS.

Most of the key metrics were mostly as expected, although the MFI, at $832 million, was in line with the consensus but slightly below the estimate.

Related Link: Buying In Bulk Not What It Used To Be? Costco Comps Flat In Q4

“The underlying metrics remained healthy & consistent as it saw a 7 percent overall increase in members, driven by an 87.6 percent renewal rate worldwide. Its online sales growth remained solid at 12 percent even as it decelerated slightly on a tougher compare,” Lasser mentioned.

Outlook Positive

More importantly, the company indicated its reported comps were likely to accelerate going forward, as deflation in categories such as proteins fades and the loss of tobacco sales begins to have less of an impact.

Margins remained steady during the quarter, especially operating margins, while gross margins beat expectations at 11.4 percent, the highest level since 1997.

Lasser believes Costco’s story continues to be strong and that the benefits from the company’s CC transition are only just starting to bear fruit and should build over time.

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