Costco (Nasdaq: COST ) is impervious to negativity. Although the discount retailer missed analysts' expectations, investors are taking the news in stride. Anybody who was waiting for a temporary plunge in Costco's stock price in order to take a position will have to wait a little longer.
Fiscal first-quarter net income inched 2.6% higher to $320 million, or $0.73 per share, including charges related to settling an income tax audit related to its Mexican joint venture and a contribution to a coalition supporting the reform of alcoholic beverage laws in Washington state; combined, these charges dinged earnings by about $0.07 per share.
Costco's net sales surged an impressive 13% to $21.18 billion, with same-store sales increasing by 10%. Excluding the effects of gas price inflation and foreign currencies, comps increased 7%.
Although Costco's shrinking margins contributed to the profit falling short of analysts' expectations, maybe the reason investors are taking the news in stride is the fact that Costco's sales increases are impressive in the current environment. Despite the fact that Costco recently raised its membership fees, it doesn't look like it's pulling a Netflix (Nasdaq: NFLX ) and alienating loyal customers, since membership fee revenue increased by 7.5%. While this is below the 10% fee hike, it is near enough that I don't worry about an exodus of customers.
Costco is one of the strongest retailers out there; that's one of many reasons I purchased the stock for the Rising Star portfolio I'm managing for Fool.com about a year ago. It's also a longtime Motley Fool newsletter service favorite.
Clearly Costco is holding its own in this difficult, highly competitive retail environment against low-priced rivals such as Wal-Mart (NYSE: WMT ) , Best Buy (NYSE: BBY ) , Target (NYSE: TGT ) , and Big Lots (NYSE: BIG ) . Costco was a major winner among the retailers that reported November same-store sales last week, too; its comps increased 9%, while Target's jumped just 1.8% and J.C. Penney's (NYSE: JCP ) fell 2%.
If some investors were secretly hoping for a big miss so they could grab a stake at a better price, there's no such cheap shot at Costco right now. The stock is trading at 20 times forward earnings, quite higher than big-box peers such as Wal-Mart, Target, and Best Buy. However, Costco's an exemplary company, renowned for growth and execution, so it's still worth the premium price.
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