Impressive financial performance
Shares of Costco Wholesale (COST) rose 12.3% in the fiscal first half of 2018, reflecting the company’s impressive financial performance over the past several quarters.
At a time when most of the company’s peers, including Walmart (WMT), Target (TGT), and Kroger (KR), are busy fighting the mighty Amazon (AMZN), Costco is sailing smoothly and generating industry-leading comps.
The company has outperformed both Walmart and Target with its sales growth rate and has marked a double-digit increase in its top line in the past four quarters. Costco has stuck to its value proposition and is widening the value gap with its competitors, which is driving its comps higher. The company’s square-footage expansion and fast checkout and returns processes have further supported its top line growth. The company’s membership renewal rates remain high (90.1% at the end of the fiscal third quarter), which is a positive.
Costco’s impressive comps growth, high membership fee income, tight control on overheads, and significantly lower effective tax rate have driven its bottom line higher, marking strong double-digit growth in the past five quarters, as we can see in the graph above.
Analysts remain upbeat and expect Costco to continue to report industry-leading sales and EPS growth rates in the coming quarters.
Costco lags its peers in terms of digital initiatives, which could have an adverse impact on its prospects as consumers increasingly shift toward online shopping. Both Walmart and Target have ramped up their digital businesses significantly and are offering numerous time- and money-saving services that are accelerating their traffic growth.
Moreover, Costco’s increased investment in price and cost headwinds stemming from higher logistics costs could continue to hurt its margins.