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Sydnee Gatewood
Sydnee Gatewood
Articles (719) 

Costco Shares Gain on Strong Quarterly Earnings

Retailer raises starting wage

March 08, 2019 | About:

Shares of Costco Wholesale Corp. (NASDAQ:COST) gained 5% in after-hours trading on Thursday after reporting solid second-quarter 2019 results.

The Issaquah, Washington-based warehouse retailer posted earnings of $2.01 per share, crushing Refinitiv’s estimates of $1.69. Revenue grew 7.3% from the prior-year quarter to $35.4 billion, just shy of expectations of $35.65 billion. The company noted its performance was due, in part, to an improved gross profit margin, which increased 31 basis points to 11.29% as a result of a drop in gas prices and lower-cost sourcing.

Costco’s total same-store sales, excluding fuel and foreign exchange rates, rose 6.7%, ahead of the 5.7% increase Wall Street was anticipating.

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Although the company noted pricing pressure on its groceries business had decreased, Chief Financial Officer Richard Galanti said during the earnings call he does not expect competition in the space to let up anytime soon.

“I believe there's a little less pricing pressure and some competitive pressure, but don't get me wrong, as soon as we have a good quarter, the next quarter will change that,” he said.

As retailers across the industry shift their focus to selling online in order to effectively compete with Amazon (NASDAQ:AMZN), Costco has invested in sprucing up its stores and website, added new inventory as well as lowered prices. It has also bolstered its shipping options to include same-day grocery delivery with Instacart. These efforts appear to be paying off as the company recorded a 25.5% increase in online comparable sales.

Galanti also announced Costco is raising its starting wage to $15 and $15.50 per hour, up from $14 and $14.50 previously, in the U.S. and Canada.

“In addition, we're also increasing wages for supervisors and introducing paid bonding leave for all hourly employees,” he said. “These items are incremental to the usual annual top of scale wage increases that are typically done each March."

He added these increases are projected to boost selling, general and administrative expenses by three or four basis points over the next four quarters. 

Costco’s rally carried over into Friday morning; with a market cap of $100.65 billion, shares were up 5.4% at $228.49. After rising 9% in 2018, GuruFocus estimates the stock has gained 12% year to date.

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Disclosure: No positions.

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About the author:

Sydnee Gatewood
I am an editorial assistant at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneerg

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