Costco Drops As Weak Results Renew Brick-And-Mortar Concerns
Costco Wholesale Corp. fell as much as 5% after posting disappointing quarterly earnings, a sign its warehouse-club model may be less durable than expected in a shaky retail economy.
Earnings were $1.17 a share in the fiscal second quarter, the Issaquah, Washington-based company said on Thursday. Analysts had predicted $1.36 a share, according to data compiled by Bloomberg.
The results -- coming from a company that’s widely seen as a retail bright spot -- renew concerns about the industry. Best Buy Co. and Target Corp. both gave pessimistic outlooks earlier this week, dragging down shares of the big-box retailers.
Costco shares fell as low as $169.10 in extended trading on Thursday. They were up 11% this year through the close. Costco’s stock had been riding high after January sales that beat analysts’ estimates by more than twofold.
A membership-fee increase announced Thursday also failed to placate investors. The company plans to boost its rates by $5 this year, a move that should help fuel sales and earnings.
As of June 1, its annual fees will climb to $60 for Goldstar and business members, Costco said. Its executive memberships will rise $10 to $120. The warehouse-club chain counts on the money for about 70% of operating income, and increases are closely watched by analysts and investors. The changes will affect about 35 million members.
Costco reported revenue of $29.8 billion in the second quarter, which ended Feb. 12. Analysts had predicted $29.9 billion. Same-store sales, excluding gas and currency changes, rose 3%. The growth was 2% on that basis in February, Costco said. Analysts had estimated 2.9%.
The company has been less aggressive in pushing into e-commerce than many rivals, but it’s working with Google Express on a program that would ship products in one to three days. It’s also testing other third-party shipping providers, such as Instacart, and expanding its online apparel selection, Costco said.
When it comes to e-commerce, “we feel fine with where we are,” Chief Financial Officer Richard Galanti said on a conference call. Online orders only represent about 4% of Costco’s sales, but they’re growing at a rate of 11% to 12%.
Costco also continues to expand its physical footprint. The company will net an additional 29 locations this year, and it’s opening its first stores in France and Iceland in May.