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Margaret Moran
Margaret Moran
Articles (316) 

Costco Falls on Record 4th-Quarter Operating Results

The warehouse retailer reported a stellar quarter with the best comps on record

September 24, 2020 | About:

After the closing bell on Sept. 24, Costco Wholesale Corp. (NASDAQ:COST) announced fourth quarter and full year operating results for fiscal 2020, which ended on Aug. 30 for the company.

For the fourth quarter, adjusted diluted earnings per share came in at $3.13 compared to $2.47 in the prior-year quarter. Revenue was $53.3 billion, higher than the previous year's $47.4 billion. Analysts surveyed by Yahoo Finance had expected earnings of $2.82 per share on revenue of $51.99 billion.

The full year brought in diluted earnings per share of $9.02 compared to $8.26 in fiscal 2019, while revenue was $166.7 billion compared to $152.7 billion.

Shares of Costco were down about 3% from the closing price of $347 in after-hours trading following the news. Year to date, the stock has risen approximately 18%.

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Highlights from the quarter

Despite higher operating costs (up 13%) and marginally lower income from membership fees, operating income rose about 35% year over year to $1.9 billion for the quarter.

Same-store sales were up a record 11.4% in the quarter, higher than any quarter since 2000. For the full year, same-store sales jumped 9.2%, the highest since 2004. Sales were up in most of the expected categories (i.e., food and perishables) due to the pandemic. In a conference call on Thursday, Chief Financial Officer Richard Galanti had the following to say:

"As people are spending less on travel, air and hotel and dining out, they seem to have redirected at least some of those dollars to categories like lawn and garden, furniture, mattresses, exercise equipment, bicycles, housewares, cookware, domestics and the like."

The basic and diluted share counts ended the year at 442 million and 444 million, respectively, both roughly the same as the end of fiscal 2019.

Costco ended the year with $12.2 billion in cash and equivalents compared to the prior-year's $8.3 billion, while overall total current assets were $28.1 billion compared to $23.4 billion, mostly due to an increase in cash and merchandise inventories.

The cash and equivalents were boosted by a $4 billion debt offering in April. Though Costco is far from being in a difficult financial situation, it went ahead with the debt offering in order to take advantage of lower interest rates. The new debt was issued at rates ranging from 1.25% to 1.75%, and it was used to pay off debts with interest rates of 2.15% to 2.25%.

Costco currently operates 795 warehouses, 552 of which are in the United States and Puerto Rico, after opening 12 net new warehouses in fiscal 2020.

Costco has not yet offered guidance for fiscal 2021.

Valuation

Shares of Costco are down after-hours even following encouraging earnings numbers, but this is not considered rare for an overvalued stock, as it is most likely due to some combination of profit-taking, general wariness or normal volatility.

The stock closed at $347 on Sept. 24 for a market cap of $153.21 billion and a price-earnings ratio of 41.4, which is higher than the 10-year median of 28.61. The GuruFocus Value Line shows the stock as "significantly overvalued."

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Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.

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