After the closing bell on Wednesday, Costco Wholesale Corp. (COST, Financial) informed the stock market that its net sales were $10.71 billion in January, reflecting an 8% increase from the same period of 2018.
Comparable sales grew 6.6% in the U.S., declined 2.9% in Canada and increased 6.5% internationally. The company's total comparable sales rose 5.2% and sales from e-commerce increased 22.1% in January.
The following increases in comparable sales for January exclude the impact of gasoline prices, currency swings and the adoption of new standards for the recognition of revenues: same-store sales increased 7.3% in the U.S., 4.6% in Canada and 11.2% in the international market. The company also recorded a 7.4% jump in total comparable sales and a 24% increase in e-commerce sales.
Despite a substantial 30.5% fall in total net sales from the previous retail month of December, Costco should close the 13-week period ending March 3, 2019, with increased total net sales compared to the previous 13-week period that ended on Dec. 2, 2018.
Investors do not need to be concerned about the sharp decline since this is simply the effect of the sales peak that is reached every year in December as a result of increased spending during Christmas holidays. This also happened in the past five years: 30.7% decline to $7.99 billion in January 2014, 32.7% decline to $8.16 billion in January 2015, 33.2% decline to $8.32 billion in January 2016, 30.5% decline to $9.08 billion in January 2017 and 18.1% decline to $12.24 billion in January 2018. Except for 2018, the decline in sales from the retail month of December to the retail month of January is in line with the past.
For the second quarter of fiscal 2019, which is the period of 12 weeks through Feb. 28, the Issaquah, Washington-based U.S. retailer is also on track to meet consensus on total revenues including membership fees. Analysts are projecting total revenues of $35.72 billion for the second quarter, reflecting an 8.3% increase from the same quarter of fiscal 2018.
The chart below illustrates Costco Wholesale Corp.’s total revenues over the five previous second quarters. This is to have an idea of how sales are trending up.
Thus, these sales results may produce a rise in the share price in upcoming days. The stock was trading at around $211.6 per share at close Wednesday for a market capitalization of roughly $93.21 billion.
The share price increased 18% for the past year through Feb. 6, but it is still below the 200- and 100-day simple moving average lines though on par with the 50-day simple moving average line. This may suggest the share price is still trading affordably.
The 14-day Relative Strength Indicator is 51.83, meaning the stock is neither overbought nor oversold.
The share price at close Wednesday is affordable but not trading at its cheapest because it is 20.4% above the 52-week low of $175.79 while still 15.9% below the 52-week high of $245.16. Also, its price-book ratio of 7.08 is 52.3% above its industry median, the price-sales ratio of 0.65 is 35.4% above its industry median and the price-book ratio of 28.71 is 309.2% above its industry median.
The Peter Lynch chart below also supports the idea that the stock is not trading cheaply. The share price is above the Peter Lynch Earnings Line (P/E = 15) and the Price at Med P/E without NRI (P/E = 24.87) line.
The company distributes a 57-cent cash quarterly dividend per common share for a forward dividend yield of 1.08% compared to an industry median of 2.22%. The S&P 500 index beats Costco Wholesale Corp.'s dividend with its 1.97% yield as of Feb. 6.
However, Costco is a loyal dividend payer, giving its shareholders a distribution since 2004. The U.S. retailer has also gradually increased the dividend over time. The ex-dividend date for the next payment occurring on Feb. 22 expires Feb. 7, and in order to benefit shareholders must be on the company’s records not later than Friday, Feb. 8.
The stock has a recommendation rating of 2.2 out of 5, and the average target price of $236.86 per share reflects 11.9% upside within the next 12 months.
Disclosure: I have no positions in any security mentioned.
