The global health crisis has changed consumer preferences with shoppers spending more on essential items such as food and home goods along with buying more online, both of which benefited Costco Wholesale Corporation (NASDAQ:COST) over the past year. However, the warehouse club titan's earnings growth came crashing to a virtual halt last quarter. Last week, the warehouse club giant reported that its sales momentum remained strong last quarter but the earnings miss led its shares to surrender all of their gains of the past 12 months. However, investors shouldn't worry too much as the company's long-term earnings growth trajectory remains intact.

What drove the drop in profitability were the lower margins on gasoline sales. Gross margin in its core categories increased YoY but overall gross margin decreased because gasoline margins weakened significantly over the quarter. Gasoline produces volatile profits. In the recent months, gasoline costs rose and Costco was deliberately slow to raise its prices to foster customer loyalty and drive traffic to its gas stations and, by extension, its warehouses. However, this strategy comes at the cost of profitability. Conversely, when gasoline prices are falling, Costco tends to earn higher margins from its gas business and the recent rally in gasoline prices should peter out soon, so Costco's profitability from this segment will improve in the near term.

Costco is likely to continue gaining market share as it capitalizes on its growing member base and its new delivery capabilities for bulky goods like appliances and mattresses. Additionally, it will benefit from smaller retailers being forced to close shop as many don't have the resources to survive the pandemic and await the aftermath. The latest earnings miss doesn't change the fact that Costco has been a big winner as the COVID-19 pandemic reshaped the retail landscape and consequent events should drive increases in its top and bottom lines.

This article is not a press release and is contributed by a verified independent journalist for IAMNewswire. It should not be construed as investment advice at any time please read the full disclosure. IAM Newswire does not hold any position in the mentioned companies. Press Releases – If you are looking for full Press release distribution contact: [email protected] Contributors – IAM Newswire accepts pitches. If you're interested in becoming an IAM journalist contact: [email protected]