Earnings

Costco's Earnings Miss

Costco's latest quarterly earnings report paints a less than rosy picture for the warehouse club retailer.

Costco's latest quarterly earnings report paints a less-than-rosy picture for the warehouse club retailer.

For the first time in over six years, the company reported flat growth in comparable sales and failed to meet analysts' expectations of 1.9 percent growth, Reuters reported.

The stagnation, the Washington-based company said, came from weakening sales in April as its high-income consumers, who make for its prime customer base, pulled back on spending at the store. Unusually cold weather and problems arising from the transition of its Amex-only platform to Visa were cited as some of the other reasons resulting in the slowdown.

The earnings report also highlights a shift in consumer spending habits, with lower-income customers reportedly spending more as compared to the middle- and higher-income groups.

On the bright side, Costco saw a 5.6 percent rise in membership as compared to a 3.9 percent membership rise of Walmart's Sam's Club, its top competitor.

However, on the sales front, Walmart beat Costco with better-than-expected sales stemming from a higher demand for clothing and increased drug prices, according to Reuters. On the other hand, retailers like Macy's and Target reported weak quarterly sales and blamed lower demand for clothing and electronics and unreasonably cold weather for it.

As for Costco, lower fuel prices were yet another circumstance affecting its quarterly earnings. About 10 percent of Costco's earnings come from gas sales at its pumps. Their effect on its earnings could make things worse for Costco, which is looking into expanding its gas station business, as Retail Dive pointed out.

Taking out the effects of fuel and currency fluctuations, Costco's sales at comparable stores went up by 3 percent, which was reportedly below the 4.6 percent estimated by analysts.

For next year, however, things might turn around for the company if it hikes the cost of its annual membership program. Costco is known to revise its membership rates almost every six years. Since the last hike came in Nov. 2011, the company is due for one next year, said UBS Analyst Michael Lasser.

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