Is Costco Cooling Down? (COST)

Is Costco Cooling Down?

Costco (Nasdaq: COST ) may have beaten analysts' expectations last quarter, but this time around, investors didn't feel nearly so joyful.

In many ways, Costco's first-quarter results look impressive. Net income increased 11% to $262 million, or $0.59 per share. Sales increased 12% to $15.9 billion, and same-store sales increased 8%. (Minus gasoline sales, that'd only be 4%, while foreign exchange rates inflated international comps).

Costco didn't miss analysts' expectations, but it appears that many investors were expecting the discount warehouse retailer to utterly spank those views -- something of a harsh attitude, given recent woes in the consumer sector. Then again, Target (NYSE: TGT ) recently disappointed investors, too.

I consider Motley Fool Stock Advisor pick Costco a very Foolish company, with a great business model and a history of treating employees well. In 2006, I even nominated CEO Jim Sinegal as a Most Foolish CEO. However, I have to administer a wee Foolish slap on the wrist for Costco's failure to include its balance sheet and free cash flow statement in its latest press release.

My colleague Anders Bylund was right yesterday when he predicted that Costco's shares could crumble -- even though it did meet the $0.59-per-share profit that seemed to be in question. The stock's been on a real roll lately, appreciating about 29% in the last year. After such a run-up, the merest disappointment can really smack such a stock.

However, I disagree with Anders that a consumer slowdown would hit Costco that hard. Unlike Wal-Mart (NYSE: WMT ) , which tends to cater to lower-income demographics, higher-income folks looking to pinch pennies will probably flock to Costco to dig for deals and bulk up on supplies. For the long term, I'm just not worried about this company, which I believe is positioned to capitalize on good times and bad.

The damage to Costco's share price has lessened as the trading day progresses. Maybe investors are realizing that for good companies like Costco, times of weakness and missed expectations make excellent buying opportunities. I'd prefer to wait for an even cheaper price, but I can't say I blame them for diving in on the weakness.

How do Costco's competitors stack up?

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