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Solid Q2 from Costco, but investors need more convincing in wake of underwhelming Walmart and Target numbers

Proactive Investors Thursday, 8 March 2018
Costco Wholesale Corporation (NASDAQ:COST) has once again proved itself to be one of the stronger discount retail chains after it topped expectations with its second quarter numbers. Like other retailers, Costco has been making moves to fend off competition from Amazon.com Inc (NASDAQ:AMZN), which made a big push into the grocery market when it snapped up Whole Foods for almost US$14bn last summer. Same-store sales – a key industry benchmark which strips out the impact of new or closed stores – rose 8.4% in the three months ended February 18, ahead of Wall Street estimates. Most chains, including Costco, have been looking to boost their online presence in order to cater to changing consumer trends and that was reflected in online sales growth of 28.5% in the quarter. But the third-largest grocery chain in the US has also been managing to bring more customers into its stores and sell more of its more memberships to bargain-hungry shoppers. Part of the reason for that is its newly-introduced delivery service which allows customers to order online and then pick up in store. Membership fees, which provide a steady stream of income, jumped to US$716mln (Q2 2017: US$636mln) in the period. Costco added that renewal rates for members rose to 91% in the quarter. Overall, sales came in at US$32.3bn – an almost 10% increase compared to the year-ago period. As for the bottom line, earnings totaled US$701mln, or US$1.59 a share, in the second quarter, beating expectations of US$1.49. That was partly helped by a one-time US$74mln gain from the US tax changes brought in earlier this year. Given the recent underwhelming results from Wal-Mart Stores Inc (NYSE:WMT), Target Corp (NYSE:TGT) and Dollar Tree Inc (NASDAQ:DLTR), investors appear to need more convincing though. Shares were down 0.5% to US$186.50 shortly before the opening bell in New York.
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