A Must-Have Retailer That Rocked the Quarter

Costco (Nasdaq: COST  ) handed over a bulky bit of joy to investors with its latest quarterly results.

Third-quarter net income increased 46%, to $306 million, or $0.68 per share. Costco's sales increased a healthy 12%, to $17.4 billion. Overall same-store sales increased 10% in the quarter (or 4% if you strip out gasoline inflation and foreign currency effects). The company's international segment posted a spectacular 26% increase in same-store sales, or 8% without gas and currency. Overall, gross margin was down slightly, hurt by gas deflation.

A few things helped prop up Costco's profit a bit; one was a partial reversal of a $14 million charge related to a Canadian tax liability last year. Last year's third-quarter results were also hit by a $34 million pre-tax charge related to a legal settlement related to Costco's membership renewal policy.

Still, Costco delivered a solid quarter -- an interesting contrast to the most recent quarters from fellow discounters Wal-Mart (NYSE: WMT  ) and Target (NYSE: TGT  ) . Wal-Mart disappointed, as its core customers continued to suffer the economy's wrath, but Target was able to reverse its previously downward trends.

Interestingly, Costco's quarterly results were bolstered by an uptick in consumers buying more discretionary items, instead of simply focusing on nitty-gritty necessities. April was a cruel month for some retailers, but despite that drag of a month, Costco still stacked up nicely when the quarter was all said and done.

Investors should maintain healthy doubts about consumers' true health, but a stock like Costco nonetheless remains a solid pick for long-term portfolios. It's got a stellar management team and a solid business with loyal customers. And of course, Costco provides high-quality, inexpensive merchandise for budget-minded consumers, a formula that works in good times and bad.

While Costco is arguably among the gold standard stocks out there, its multiples tend to rise above those of its peers, too. It trades at about 17 times forward earnings, compared to Wal-Mart's 11, and Target's 12. In a continuation of that theme, Big Lots (NYSE: BIG  ) , another discount retailer that reported heartening quarterly results today, trades at a forward P/E of 11 as well. So right now, you'll have to pay up for Costco's performance. One name to be wary of: Sears Holdings (Nasdaq: SHLD  ) . It's not as strong a retailer as its rivals, yet it trades at 29 times forward earnings, definitely looking very overpriced relative to the group.

Frugal investors might want to wait for a less pricey entry point for Costco shares. But sometimes a company's high-quality, trustworthy attributes merit a premium price, especially for true, long-term buy-and-hold investors. Costco fits that bill.

Costco and Wal-Mart are Motley Fool Inside Value picks. Costco is a Motley Fool Stock Advisor choice. The Fool owns shares of Costco. Try any of our Foolish newsletters free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1194732, ~/Articles/ArticleHandler.aspx, 11/23/2014 2:44:40 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 17,810.06 91.06 0.51%
S&P 500 2,063.50 10.75 0.52%
NASD 4,712.97 11.10 0.24%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

11/21/2014 4:00 PM
COST $139.72 Up +0.47 +0.34%
Costco Wholesale CAPS Rating: *****
BIG $50.25 Down -0.07 -0.14%
Big Lots CAPS Rating: ***
SHLD $36.31 Down -0.14 -0.38%
Sears Holdings CAPS Rating: *
TGT $71.51 Up +0.32 +0.45%
Target CAPS Rating: ***
WMT $84.65 Up +0.07 +0.08%
Wal-Mart Stores CAPS Rating: ***

Advertisement