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Costco’s earnings are disappointing and the stock is down. It’s time to buy the dip.

By on September 22, 2022 0

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Costco’s earnings rarely disappoint.

Mario Tama/Getty Images

Costco

Wholesale is not the kind of business that delivers a lot of bad news and Thursday’s earnings report was no different.

Still, Costco (ticker: COST) stock fell 2.6% in after-hours trading on Thursday as investors hoped for more than they got from retail earnings.

Costco posted net income of $1.87 billion for the quarter, or $4.20 per share, slightly above analyst consensus for $4.17 per share. Sales were $70.8 billion.

That Costco pulled off a beat shouldn’t be shocking. Between its long history of upbeat earnings and strong monthly sales updates — the last of its kind among major retailers — Costco Wholesale’s (COST) quarterly results don’t typically come with many surprises. This was also true for its fiscal fourth quarter: we already learned earlier this month that comparable sales for the quarter grew double digits when it released its August update.

Still, anything that causes the stock to swing should be seen as a gift to investors. While Costco shares had fallen 13% this year, that easily beats the


S&P500

Falling 21%, its shares, which have always earned a premium to the market, are by no means cheap. They are still changing hands at more than 34 times forward earnings, around their five-year average of 33.

A negative reaction should therefore not be greeted with dismay. For those who missed Costco’s multi-year run, or are hesitant to add to their position when the stock was down earlier this year, an opportunity to get the stock a bit cheaper should always be a treat, especially when ‘there is no sign that anything is wrong. with Costco’s business.

Buying low has undoubtedly been a profitable bet in the recent past. Costco has climbed more than 205% in the past five years, nearly four times the S&P 500. But what about those who fear that means they’ve missed the mark? There are trends that should comfort them.

Recent monthly same-store sales figures show Costco’s deals are still running more than 30% above what they were before the pandemic, while traffic and how much shoppers spend while visiting increased. This indicates that the market share gains the company has captured during the pandemic are likely to be sustainable.

Then there’s the fact that “Costco’s membership trends have never been stronger,” as Baird analyst Peter Benedict noted earlier this month — and that could drive revenue. extra if he were to institute a seemingly timely membership fee increase, although that is not something that is planned. arrive right away.

The reality is that while high inflation, worries about the path of the economy, and inventory issues are indeed weighing on retail as a whole, Costco is avoiding many of those concerns. Its August update showed continued resilience in non-food categories, suggesting it doesn’t have a glut of goods that its shoppers suddenly feel too short to buy, which is not not surprising given its relatively affluent clientele.

Its discounted gasoline may have helped traffic during summer’s price spike, but in fact, throughout 2022 through Labor Day, Costco’s traffic has been above pre-pandemic levels during 31 of the 36 weeks of the year, according to data from Placer.ai.

It’s clear that the company’s low-price strategy is resonating. Or as Jefferies analyst Corey Tarlowe previously put it Barrons“Value retailers like Costco are in the best position because…when people’s pockets are pinched, value wins.”

Investors can too.

Write to Teresa Rivas at [email protected]