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Costco Stock Rises on Better-than-Expected Q2 Earnings

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Key takeaways from Q2

Costco (COST) posted mixed second-quarter results after the markets closed on Thursday, March 7. The quarter ended February 17. Costco’s top line sustained momentum thanks to the continued strength in comps. However, the top line fell short of analysts’ estimate, reflecting adverse weather conditions and currency volatility.

Despite missing analysts’ estimates on the sales front, Costco stock was up 4.7% in after-hours trading thanks to the stronger-than-expected comps growth and stellar performance on the profitability front. Costco’s adjusted comps rose 6.7% during the second quarter, reflecting a solid performance in the US. Analysts expected Costco to report comps growth of 5.7%.

Continued strength in comps, higher membership fee income, and a lower effective tax rate drove Costco’s second-quarter EPS, which rose at a double-digit rate and crushed analysts’ estimate.

We expect Costco to continue to report healthy sales growth in the coming quarters led by sustained momentum in comps. Meanwhile, earnings are expected to grow at a high-single-digit rate despite tough YoY comparisons, which is encouraging.

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Stock performance so far this year

Costco stock is up 6.4% on a YTD basis as of March 7. The company’s strong performance on the comps and earnings front is expected to drive its stock further. In comparison, both Walmart (WMT) and Target (TGT) also impressed with their recent quarterly performance. Walmart and Target stock are up 4.6% and 15.3% so far this year. Meanwhile, Kroger (KR) stock is down 6.9% on a YTD basis, as weaker-than-expected fourth-quarter results remained a drag.

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