Costco $COST Falls After Net Sales Miss, Amazon Concerns

Costco Wholesale on Thursday after the close announced better than expected fiscal fourth-quarter earnings, however with a market conerned with a predatory Amazon $COST was down over 5% by market open on net sales missing.

Costco Wholesale on Thursday after the close announced better than expected fiscal fourth-quarter earnings, however with a market conerned with a predatory Amazon $COST was down over 5% by market open on net sales missing. This was despite all other metrics being higher such as profit and memberships. Profit grew 18% to $919 million which increased the annual membership fee for Gold Star and Executive members in June 2017, saw membership revenue growth of 13% in 4Q17.

Costco Services

Earnings: EPS of $2.08 beating the $2.02 estimate on revenue of $42.3 billion higher than the estimated $41.74 billion. Adjusted total comp sales rose 5.7% and U.S. comps were up 5.8%. But net sales, which exclude membership fees, were at $41.36 billion, missing Factset’s estimate of $41.6 billion.

Reaction Costco Wholesale Corporation $COST Nasdaq $157.77 -$9.31 (-5.57 %) @ 10:15am EDT

As of Sept. 2017, Costco had 741 warehouses worldwide with over 227 warehouse stores abroad. 

Costco Better Pricing and Shipping Than Amazon – BMO Capital Markets Report

In September BMO reported on $COST, $AMZN and $WMT and found $COST the best performing on key metrics that the market is concerneed about, costs, timing and shipping. Costco beat on all three yet again the market assumes $AMZN will win and if not will crush it;s competitors despite the facts. It also shows just how in an all time high market mania $AMZN is considered golden with no flaws. Manic rationale anyone?

BMO analyst Kelly Bania found in the 16 categories studied $COST had prices 7% lower than on Amazon’s website. Shipping took an average of 4.5 days per each item compared to 5.5 at Amazon. Wal-Mart and its Jet.com owned e-commerce website had prices that were 18% higher than Amazon’s and took a lot longer to ship with the average being 9.8 days.

“With Costco generally beating Amazon in both price and shipping, it’s a reminder that Amazon has strong competition for all those musing about antitrust concerns, especially ones with a strong membership program like Costco’s. And with Walmart investing heavily in eCommerce, we think it remains a vital competitor to watch, especially on price,” wrote Bania. “With that said, Amazon offers a wider set of SKUs​ than Costco does, and Prime has other benefits (video, music, etc.) that create differentiation.”

Still despite this Bania rates Wal-Mart and Costco at market perform with price targets of $80 and $170, respectively while still reiterating her outperform rating on Amazon with a $1,200 price target.

“Despite Costco’s price gap to Amazon we believe near-term sentiment and fear of the long-term impact of Amazon on Costco’s business (whether or not justified by near-term fundamentals) could continue to create an overhang on COST shares and limit valuation upside,” she wrote.

 Memberships Continue to Grow

One of Costco’s great downside protection is it’s memebership model as the following graphic shows:

Costco Membership Base

 Sources: Costco, AlphaStreet

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