Costco Gains as Warehouse Club Shines in Cloudy Retail Climate

  • Earnings growth exceeds analysts’ estimates last quarter
  • Results are ‘welcome development’ for retail, analyst says

The Numbers Don't Lie: Costco Is Coming Back to the Pack

Costco Wholesale Corp. shares gained the most in more than six years after earnings topped analysts’ estimates, a sign the warehouse club is weathering a volatile retail climate.

Net income rose 5.6 percent to $545 million, or $1.24 a share, the Issaquah, Washington-based company said Wednesday in a statement. Analysts estimated $1.22 a share on average.

Costco has reined in expenses to cope with a sales slowdown at its stores, which have suffered from lower prices at their gasoline pumps. The profit gain brought a note of optimism to investors after weeks of mixed results from retailers. Macy’s Inc., Best Buy Co. and other companies have given downbeat forecasts, but Wal-Mart Stores Inc. posted better-than-projected profit and sales last week.

Costco’s earnings were “a welcome development” at an unsettled time, Sterne Agee CRT analyst Renato Basanta said in a report.

Costco shares rose as much as 6 percent to $153.88 in New York, the biggest intraday gain since September 2009. The stock was down 11 percent this year before the rally.

Still, Costco’s same-store sales growth was weaker than expected. It rose 3 percent in the U.S. last quarter, excluding the negative impacts from lower gasoline prices and foreign exchange. Analysts had estimated 4.1 percent.

Gas Prices

Declining oil prices have weighed on sales because Costco sells gas at its stores, and the strong dollar has crimped overseas revenue. Another challenge: The company is transitioning its members’ credit cards to Visa through Citigroup Inc. from American Express, a move analysts have said could hurt membership if customers are unhappy with the transition.

Keeping a tighter lid on expenses has helped Costco bolster profit at a time of slowing sales growth. Costco, which has a $55 annual membership fee, also benefits from catering to higher-income shoppers and small businesses -- unlike many discount chains.

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