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Costco Beats 4Q17 Estimates: Stock Still Falls

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Part 2
Costco Beats 4Q17 Estimates: Stock Still Falls PART 2 OF 5

Costco Tops 4Q17 Earnings Estimate, Marks Strong YoY Growth

EPS versus consensus

Costco Wholesale (COST) reported better-than-expected bottom-line results on October 5, 2017. The company’s earnings of $2.08 per share surpassed analysts’ estimate of $2.02 and rose 17.5% YoY (year-over-year). Strong sales and increased savings from the co-branded Costco Visa card by Citi helped drive the company’s stellar EPS (earnings per share) growth. For fiscal 2017, EPS of $6.08 was above analysts’ estimate, rising 14.1% YoY.

Costco Tops 4Q17 Earnings Estimate, Marks Strong YoY Growth

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In comparison, Costco’s bottom line growth compares favorably to Walmart’s (WMT) and Target’s (TGT). Walmart managed to increase its EPS in the first half of fiscal 2018. However, the rate of growth remains low (1.0% during the last reported quarter). Target’s profitability took a hit from increased investments following growing competition from Amazon (AMZN) and other grocery retailers.

Factors driving Costco’s EPS

Costco’s EPS was driven by its industry-leading comps (comparables) growth, thanks to higher store traffic and a rise in average transaction size. The company is generating strong growth in the United States (SPY), reflected through increased shopping frequency.

Costco’s membership fee hike and cost savings from its shift to the Citi Visa co-branded card further supplemented its bottom-line growth. During the reported quarter, the company’s new credit card facility positively impacted its profitability and added $0.13 per share to its earnings.

Higher profits from gas and an additional week compared to the prior year also supported EPS growth. However, increased price investments and higher interest expenses remained a drag.

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