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Stifel Remains A Costco Bull After In-Line Q2

Courtesy of Benzinga.

Stifel Remains A Costco Bull After In-Line Q2

Costco Wholesale Corporation (NASDAQ: COST) reported fiscal second-quarter results Wednesday that were generally in-line with consensus estimates and reinforced the bullish case for owning the warehouse club’s stock, according to Stifel.

The Analyst

Stifel’s Mark Astrachan maintains a Buy rating on Costco’s stock with an unchanged $200 price target.

The Thesis

Costco’s in-line Q2 report reaffirms the company’s status as a best-in-class retailer, Astrachan said in a note. Here are the analyst’s main takeaways after the print:

  • Core-on-core merchandise — which represents 80 percent of net sales — margin rose 14 basis points after falling a few basis points in the prior quarter.
  • Total company and U.S. core comp growth in the month of February rose 7.7 percent and 7.5 percent, respectively. Both of these figures were ahead of consensus estimates and imply a sequential acceleration on a two-year basis of 90 basis points and 40 basis points.
  • Costco expects to gain 10 to 20 percent of the sales from Sam’s Club locations that are closing. This implies a potential 0.9-percent increase, or $900 million, in U.S. sales at the 20-percent level.
  • Renewal rates rose 10 basis points compared to the prior quarter, ending at 90.1 percent in the U.S. and 87.3 percent in Canada and worldwide.
  • E-commerce online comp sales rose 28.5 percent in the quarter while two-day dry grocery delivery and same-day fresh delivery through Instacart remains positive-to-date.
  • The company realized 21 basis points of SG&A leverage year-over-year due to strong sales growth and this trend will likely continue.
  • Costco said it will invest a “small amount” in price investments but its suppliers will be investing “more,” according to Stifel. This implies vendor-funded promotions will generate a higher gross margin rate for Costco and marks the first time a retailer within the research firm’s coverage “explicitly admitted exacting price concessions from suppliers,” Astrachan said. 

Price Action

Shares of Costco were trading lower by 2 percent Thursday morning at $183.61. 

Related Links:

Predicting Costco’s Trading Action Heading Into Its Q2 Earnings Report

Costco Upgraded As Analyst Projects A Widening Competitive Moat

Photo by Stupendousmat/Wikimedia.

Latest Ratings for COST

Date Firm Action From To
Jan 2018 Gordon Haskett Upgrades Accumulate Buy
Dec 2017 BMO Capital Upgrades Market Perform Outperform
Dec 2017 Moffett Nathanson Initiates Coverage On Buy

View More Analyst Ratings for COST


View the Latest Analyst Ratings

Posted-In: Costco International Mark Astrachan retail earnings retailersAnalyst Color Price Target Reiteration Analyst Ratings Best of Benzinga


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