29 May 2020

Costco Misses FQ3 Estimates, But Hope Remains

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News shaping
the markets today

     

What’s happening: Shares of Costco Wholesale Corp fell in extended trading on Thursday, after the retail giant missed expectations for its fiscal third quarter.

What happened: Although the pandemic forced shoppers to stay mostly home and make fewer visits to stores, like other grocers, Costco witnessed a rise in the average size of orders, despite the lower footfall.

Costco operates around 800 stores globally, of which 547 are in the US. The Issaquah, Washington-based retailer was forced to temporarily close some of its stores due to the pandemic, which negatively impacted its quarterly sales. Despite Costco recording a steep spike in its ecommerce sales during the quarter, it was unable to meet Wall Street expectations.

Management did make an announcement yesterday, which could attract shoppers back to its stores going ahead.

How were the results: The retailer reported a decline in quarterly earnings, with its bottom line being impacted by $283 million in expenses related to operating during the pandemic.

  • Costco’s sales grew 7% to $36.45 billion, from $33.96 billion in the same quarter last year. Despite the growth, the figure missed the consensus estimate of $37 billion.
  • Net income came in at $838 million, or $1.89 per share, down from $906 million, or $2.05 per share, in the year-ago quarter. Analysts projected earnings of $1.96 a share.

Why it matters: Costco witnessed a rise in sales in the fiscal third quarter with customers stockpiling grocery items, toilet papers, bottled water, and other essentials, amid lockdowns. The company said that its sales were restricted due to people staying home.

Shoppers had rushed to Costco’s stores in March to stock up on essentials, and the company’s same-store sales gained 9.6% in the five-week period ended April 5. However, the gains cooled off in April, and same-store sales declined 4.7% in the four-week period ended May 3. For the quarter, same-store sales grew 4.8%, short of Wall Street expectations of 5.6%.

Costco’s ecommerce sales surged a whopping 64.5% in the quarter, but the company witnessed a rise supply chain expenses, hurting profitability.

The company had to close its food courts due to covid-19 last quarter. It has reopened around 20% of these in the current quarter and management indicated plans of reopening all food courts by mid-June.

Costco announced the completion of a $4 billion debt offering in April, which will give the company additional financial flexibility during the current crisis.

How the shares responded: Shares of Costco slipped 2.2% in after-hours trading on Thursday, following the release of strained quarterly results. The stock has gained 1.5% over the past month and over 10% in the past three-month period.

What to watch: The retailer is making attempts to restock its stores more smoothly, especially for items like disinfecting wipes and hand sanitisers. Investors will look out for any news related to Costco resolving its supply chain issues. Analysts widely expect the company to return to its growth track, with people now feeling more comfortable moving out of their homes.

The Markets Today

     

The Canadian dollar will be in focus today, ahead of economic growth data scheduled to be released later in the day.

Context: The Canadian dollar slipped against the greenback on Thursday following a report showing a wider current account deficit. Investors also remained cautious ahead of the country’s GDP report, which is expected to indicate a contraction in the economy.

Details: The loonie was the only G10 currency to suffer losses versus the US dollar on Thursday. Despite that, the Canadian dollar has made a strong recovery over the past two months, rising over 6% after hitting a four-year low in March.

Canada reported a higher-than-expected current account deficit for the first quarter. The country’s deficit increased to C$11.1 billion, versus a C$9.3 billion gap in the fourth quarter.

Crude oil, one of Canada's major exports, cut back earlier losses due to prospects of a rise in demand for US gasoline. WTI crude oil futures gained 2.7% to settle at $33.71 a barrel in the previous session.

The CAD/USD pair traded down 0.2% to 0.7257 on Thursday. The pair had surged to 0.7277 at 6am GMT today.

What to watch: Traders await a basket of economic reports from Canada, including GDP growth rate, producer prices, raw materials prices and government budget value. The Canadian economy, which grew an annualized 0.3% in the fourth quarter, is expected to shrink 10% in the first quarter. However, a recovery is expected in the second quarter with businesses gradually reopening.

Investors will continue to assess the daily coronavirus cases, with the number of infections crossing 5,808,940 globally. Canada has confirmed over 89,970 covid-19 cases with around 6980 deaths.

Other Markets: US indices closed lower on Thursday, with the Dow, S&P 500 and Nasdaq 100 down by 0.58%, 0.21% and 0.46%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany’s retail sales and import prices, South Africa's private sector credit, money supply M3, consumer confidence and balance of trade, UK’s nationwide housing prices and car production, France’s GDP growth rate, inflation rate, household consumption expenditure and producer prices, Turkey’s GDP annual growth rate and balance of trade, Eurozone’s loans to private sector, household credit growth, money supply M3 and inflation rate, Indonesia’s loan growth, Italy’s GDP and inflation rate, Spain's current account, India’s foreign exchange reserves, fiscal deficit, infrastructure output and GDP annual growth rate, Brazil’s GDP annual growth rate and government budget value as well as the US personal spending, personal income, goods trade balance, wholesale inventories, Chicago PMI, University of Michigan's consumer sentiment index and Baker Hughes crude oil rigs, Russian money supply M2 and corporate profits.

 

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