Higher sales? Check.
Higher customer counts? Check.
Higher same-store sales? Check.
Higher earnings? Check.
So what was the problem with Costco's
In a word, margins. Costco delivered everywhere, turning in growth on every line item except for one: operating margins. Costco has famously refused to consider Wall Street's opinion of how it compensates its employees (much higher than average), so the company can rightly expect, when it stumbles -- even in as minor a way as it did this past quarter -- that the Street will seek to penalize it heavily for its transgressions.
For the quarter ending Feb. 13, Costco turned in revenues of $12.4 billion, up 9.5% over the year previous. Same-store sales were up 7%, the difference coming in the form of new stores. Costco has opened 13 new warehouses in the first half of its fiscal 2005. Profits were $0.62 per share, but once adjustments for a one-time tax benefit and charges to pre-opening expenses were made, the company's earnings came in at $263 million, or $0.54 per share.
All of this is simply great. Costco continues to perform extremely well versus its peer competition: Wal-Mart's
The sell-off in the stock would be puzzling were it not for the fact that Costco's shares have gone from discounting the overly pessimistic in 2002 to being fairly optimistic today. In the conference call, management let Wall Street analysts know that their assumptions for the remainder of 2005 were a little aggressive. This isn't a company that tends to play "beat the number" analyst games, so I think investors can take these comments at face value.
Bill Mann owns shares of Costco. For a complete list of his holdings, please consult his profile.
