Costco Income Rises

Costco Wholesale COST announced on Wednesday that its second quarter profit saw a significant rise of 13% thanks to improving sales and income from membership fees, topping analyst's expectations on Wall Street. According to the Associated Press, the current state of the economy has seen American consumers look to stretch every dollar as far as possible by shopping at wholesale clubs. In addition, this is a good time of year for wholesale clubs, as consumers are receiving tax refunds and, with extra cash potentially in hand for the first time in months, are looking to stock up on items like toilet tissue, laundry detergent, cat litter and other goods that do not expire within a couple of weeks. The numbers do make for impressive reading, with net income rising $394 million, or 90 cents per share, for the period ending February 12. Last year, the income was at $348 million, or 79 cents per share. Analysts had predicted about 88 cents per share. As for revenue, that increased 10% to $22.97 billion from $20.88 billion, beating the Wall Street analyst's $22.7 billion forecast. COST also revealed that membership fees had risen to $459 million from $426 million, as expiring memberships went a long way towards boosting the second-quarter numbers for the wholesale store. All of the stores open a minimum of a year saw revenue climb 8%. There was also an 8% rise in the U.S. and overseas during 2Q. Take gas out of the equation, and those stores still saw a revenue increase of 7%. In a research report on Wednesday, Piper Jaffray said that COST reported EPS of $.90/share versus consensus of $.87/share driven by strong top line results and slightly favorable tax rate ~$.02/share. “We believe that strong same store sales trends coupled with returns on invested capital remain key to Costco's valuation.” ISI saw an upside surprise from the tax rate, as revenue of $22.5bn – global comps of 8% reported, 7% ex Gas/ FX – was effectively in-line with our estimate. “Costco's record 89% renewal rates will be a focus, as will the pace of new member sign ups. Our prior survey work suggested Costco's members value their membership enough to renew despite a 10% fee increase, suggesting renewal rates should not dip more than 40 or 50bps.” J.P. Morgan said that COST printed another impressive core comp (ex. gas and FX) of 7% in February, which beat the Street's 6.1% forecast. “Overall today's release is likely to add a sense of relief to investors who were holding on tight for the gross margin trend, which was feared to get worse but actually improved 10 bps sequentially.” Oppenheimer said that COST reported Q2 (Feb.) results essentially in line with Street expectations. “We continue to look very favorably upon longer-term prospects at COST, but see limited upside to nearer-term EPS estimates. With shares trading at 22x our FY12 EPS estimate, we would wait for a better entry point.”