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Costco Trading in the Red Despite Stellar Sales

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Why Costco stock is trading in the red

Costco (COST) stock is trading in the red on a YTD (year-to-date) basis as of March 28 despite stellar sales and EPS (earnings per share) growth over the past several quarters. The recent decline in the stock stems from an earnings miss for the last reported quarter. Costco’s fiscal 2Q18 adjusted EPS jumped 21.4% YoY (year-over-year) but fell short of analysts’ expectations.

A quarterly earnings miss shouldn’t concern investors much, as Costco’s earnings growth remained strong—better than rivals’, including Walmart (WMT) and Target (TGT). What affects investors most is the growing shift toward digital commerce and Costco lagging peers on the digital front.

Investors remain wary of the consumer shift toward digital platforms. Amazon’s (AMZN) expansion into the grocery space with its Whole Foods acquisition will likely hit Costco’s business.

Meanwhile, peers Walmart and Target have significantly ramped up their digital platforms with bolt-on acquisitions, exclusive product launches, and free and fast delivery options.

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Though Costco hasn’t been vocal about its digital initiatives, it did introduce a free two-day delivery service for non-perishable items. Meanwhile, the company—in partnership with Instacart—expanded its same-day delivery of fresh groceries. For the last reported quarter, Costco’s e-commerce channel recorded 28.5% growth. Also, the company’s management stated that its e-commerce offerings are off to a healthy start.

Meanwhile, the company’s core business remains strong, as it continues to generate double-digit sales and earnings growth.

YTD stock performance

Costco stock is down about 1.3% on a YTD basis as of March 28. Meanwhile, Walmart stock fell 11.1% as a slowdown in its e-commerce business took a toll on its stock. Target stock is up about 6.0%, reflecting the company’s improved sales performance, driven by exclusive product launches and continued strength in its digital business.

The S&P 500 Index (SPY) is down 2.6% on a YTD basis.

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