Investors Will Likely Become Members at Costco After Its Latest Earnings Release

Whether or not you are a paying member, it's quite obvious that Costco  (NASDAQ: COST  ) is doing quite well for itself. On May 29, 2014, Costco announced third-quarter earnings for the period ended May 11, 2014 along with financial results for the first 36 weeks of fiscal 2014. So just how well did its warehouses do in its latest release? Furthermore, is Costco experiencing larger growth than competitors Target  (NYSE: TGT  ) and Sam's Club, which is owned and operated by Wal-Mart  (NYSE: WMT  ) ? 

A solid performance
Shareholders in Costco should be pleased that the company grew both net sales and revenue from its year-ago third quarter ended May 12, 2013. In fact, total net sales rose by 7% to $25.23 billion from $23.55 billion in the third quarter of fiscal 2013. Total revenue also increased by a similar amount thanks to a slight boost in membership fees. For the third quarter, revenue jumped 7.1% to $25.794 billion compared to a year ago when revenue totaled $24.083 billion.

Analysts and shareholders were somewhat disappointed with the company's reported profit for the quarter even though it increased 3% to $473 million, or $1.07 per share, from $459 million, or $1.04 per share. The company's earnings per share did fall short of analysts' estimates as they had expected $1.09 per share. Furthermore, companywide comparable sales increased by 4% with a 5% increase in the U.S. warehouse division and a 3% increase in the company's international division. As of May 12, 2014, Costco operated 655 total warehouses worldwide, including 464 warehouses in the U.S. alone.  

Outselling the competition
Fortunately for Costco investors, Target and Sam's Club just reported first-quarter earnings which allow a comparison with Costco's results.

Quarter ended May 2014:

Company Name

Revenue Growth

U.S. Comparable Sales Growth

Costco

7%

5%

Target

0.2%

-0.3%

Sam's Club

0.1%

-0.5%



Costco performed much better than its competitors during the period in question. It should be noted that Target and Wal-Mart are much bigger than Costco. The fact that Costco's comparable-store sales growth was much stronger than those of Sam's Club and Target shows that it is performing much better on a store-by-store basis than its peers.

Despite its much smaller size, Costco is putting up quite a fight which has forced competitors to take certain measures to keep their sales strong. In fact, Wal-Mart announced in January that it will cut more than 2,000 Sam's Club jobs at under-performing locations in order to make ends meet and keep sales up.  As for Target, lackluster U.S. sales are being weighed down further by problems in its Canadian operations.

Foolish takeaway
Costco will likely perform well in the fourth quarter as more and more consumers purchase memberships at the company's warehouses. What makes Costco all the more attractive to its members is its service offerings -- pharmacies, one-hour photo centers, eye-care dispensing centers, gas stations, food courts, and travel assistance within its 655 warehouses. Investors would be wise to keep an eye on Costco and do further research. Its fourth-quarter and full-year earnings wrap up in late August and will be even more telling about whether the company is on track for bigger and better results than its competitors.

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Related Tickers

9/29/2014 3:59 PM
COST $125.32 Down -0.22 -0.18%
Costco Wholesale CAPS Rating: *****
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WMT $76.08 Down -0.41 -0.54%
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