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Costco Beats 4Q17 Estimates: Stock Still Falls

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Part 3
Costco Beats 4Q17 Estimates: Stock Still Falls PART 3 OF 5

What’s behind Costco’s Strong Fiscal 4Q17 Sales?

Sales versus analysts’ estimate

Costco Wholesale’s (COST) fiscal 4Q17 total sales of $42.3 billion exceeded Wall Street’s estimate and rose 15.7% YoY (year-over-year), reflecting growth in average transactions and shopping frequency. Peers Walmart (WMT) and Target (TGT) have also reported improved top-line performances during the first half of the current fiscal. However, the rate of revenue growth remains well behind Costco.

As for fiscal 2017, the company’s total revenue rose 8.7% YoY to $129.0 billion.

What’s behind Costco’s Strong Fiscal 4Q17 Sales?

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Costco’s total sales are comprised of revenues from its warehouses and membership fees. During fiscal 4Q17, its net sales rose 15.8% to $41.4 billion, driven by a 6.1% rise in comps (comparables). Membership revenue showed an improvement of 13.3% to $0.90 billion, reflecting increased penetration in executive memberships and the opening of new warehouses. The company also witnessed a 21.0% YoY growth in its e-commerce business during the quarter.

Factors behind Costco’s stellar comps

Costco continued its strong performance for comps in fiscal 4Q17. During the quarter, its comps rose 6.1%, driven by a 3.9% growth in average shopping frequency and a 2.1% rise in the average transaction. Costco’s average shopping frequency improved 4.4% in the United States (SPY). Inflation in gasoline prices supported comps growth by 0.50%, while currency fluctuations adversely impacted comps growth.

By region, comps rose 6.5% in the United States and 4.9% in Canada. They improved 5.6% for Other International locations. Excluding the impact of gasoline and fluctuations in foreign exchange rates, overall comps rose 5.7%, with the United States, Canada, and Other International locations registering growth of 5.8%, 4.8%, and 6.0%, respectively.

In terms of product categories, comps rose 4.0% in the food and sundries segment, reflecting higher sales of spirits, frozen, and deli. Hardlines comps increased in the mid-single-digits with improvement in toys, tires, and lawn and garden items. Comps increased in the high-single digits in consumer electronics and softlines, while comps for fresh foods registered a growth in the mid-single digits.

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