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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.