Costco Wholesale Corp. (COST, Financial) released its third-quarter results after the closing bell on May 28. The company surpassed revenue projections, but posted an earnings miss.
Overview of the quarter
The warehouse operator posted net income of $838 million, or $1.89 per share, down from of income of $906 million, or $2.05 per share, for the year-ago quarter. Analysts had predicted earnings of $1.95.
Revenue (including net sales as well as membership fees) of $37.27 billion was up 7.3% on a year-over-year basis and was also ahead of analysts’ expectations of $37.13 billion.
While comparable store sales inched up 4.8% in the reported quarter. While the number of transactions plunged during the quarter, the average transaction jumped 9.3% as compared to the same period last year due to customer’s lesser but larger shopping trips. E-commerce comparable sales climbed 65% in the reported quarter.
Operating income came in at $1.18 billion, which reflected growth of 5.1% over the past year. The operating margin stood flat at 3.2% of sales.
Effect of pandemic on earnings
While Costco's sales shot up during the quarter, with customers buying large quantities of groceries and essential items amid the pandemic, earnings were hampered. The company incurred incremental coronavirus-related expenses to the tune of $300 million in the form of additional wages and sanitation. This reduced the company’s bottom line by $283 million pretax, or 47 cents per diluted share.
Costco projects additional coronavirus-related expenses will edge past $100 million in the fourth quarter.
Sales in April
Costco said its April sales dipped 1.8% on a year-over-year basis to $11.4 billion courtesy of a decline in customer traffic at its physical stores due to the shelter-at-home orders and social distancing requirements. E-commerce sales surged approximately 86% during the month, but it did very little to offset poor customer traffic at stores.
Same-store sales plummeted 4.7% in April, which included a 3.3% drop in U.S. comps.
Store details
During the quarter, the company launched two new stores. It looks forward to opening 10 stores in the fourth quarter of fiscal 2020, which includes two relocations.
Costco runs about 800 warehouses in all the regions it operates. In the U.S itself, the company has 547 stores.
Financials
At quarter-end, the company had cash and cash equivalents of $10.8 billion and long-term debt (barring current maturities) of $7.6 billion.
In order to strengthen its liquidity position, the company raised $4 billion in debt on April 20.
Disclosure: I do not hold any positions in the stocks mentioned.
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