Earnings

Costco Posts Solid Quarter, Limits Virus-Related Items

Costco

Used to be that retail earnings reports were about numbers. Now they’re about viruses. That was the case yesterday as Costco announced Q4 earnings per share of $2.10 on revenue of $39.07 billion. Adjusted same-store sales grew 7.9 percent with U.S. comps up 8.1 percent, Canada up 6.8 percent and international up 7.1 percent. In keeping with other large retailers, eCommerce sales climbed 28 percent.

“February sales benefited from an uptick in consumer demand in the fourth week of the reporting period,” the company said. “We attribute this to concerns over the Coronavirus and estimate the positive impact on total and comparable sales to be approximately three percent.”

And a day after social media was buzzing with panic buying at several Costco locations, the company also announced on its earnings call that it has started limiting shopper quantities of several items related to the coronavirus health scare. CFO Richard Galanti said the chain expected to keep stock on key items and that its supply chain was solid.

“Overall, in terms of coronavirus related demand, it’s looking better, but not perfect,” he said, adding, “We have enhanced sanitizing protocols and safety procedures have been implemented all the locations, in some examples wiping down car handles with sanitizing wipes, placing of sanitizing wipes stands at entrances. Also we’ve enhanced procedures at the food courts, patio tables condiment tables, dispensers and contents etc.”

There was some concern about the chain’s eCommerce numbers. It was reported last month that Costco.com saw slow load and transaction times over the Thanksgiving weekend, according to site monitoring company Catchpoint. Apparently, shoppers were unable to get the site to load on Thanksgiving. The retailer’s website issues appeared to resolve around 7:15 p.m. EST Friday, before returning Saturday afternoon.

During that period, a banner on its site read: “The website is currently experiencing longer than normal response times. Please note that all Thanksgiving Day-only promotions have been extended into Friday, November 29th, WHILE SUPPLIES LAST. We apologize for any inconvenience.”

Costco did not offer any guidance and the earnings didn’t spur any major opinion swings from analysts. It has always been a balanced stock.

“Costco is one of the highest-quality consumer staples retailers domiciled in the U.S., and a clear standout within our coverage universe,” said Credit Suisse analyst Judah Frommer in a StreetInsider report. “The stock’s re-rating over the past year, however, gives us pause and we see risk/reward as fairly balanced at these levels. Outsized sales productivity, operating efficiency, market share gains, and the ability to further monetize a deep customer data set are all extremely compelling fundamental aspects of the story, but valuation relative to its own history and the broader market appears stretched at a time we anticipate (still healthy) growth to slow.”

What wasn’t mentioned on the call was a major healthcare purchase last week. Costco took a minority stake in the pharmacy benefit management business through a company owned by St. Louis-based hospital system SSM Health.

SSM Health said the deal would allow the system to tap into Costco’s expertise and expand its Navitus Health Solutions to more people. The deal also includes a specialty pharmacy subsidiary.

“Costco, meanwhile, could benefit if Navitus members are steered toward Costco stores and clinics,” analysts at investment banking and advisory firm Evercore ISI wrote in a research note Wednesday.

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