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Costco shares climb despite downbeat earnings

Monday, May 29, 2023

Today’s headlines

What’s happening: Shares of Costco Wholesale Corporation rose on Friday, following the release of its third-quarter results.

What happened: The warehouse club operator missed earnings expectations due to a non-recurring charge of 50 cents per share.

However, Costco managed to report a strong figure for one of its major metrics, lending support to the company’s shares.

How were the results: The Issaquah, Washington-based company reported growth in sales for the latest quarter.

  • Total revenues rose to $53.65 billion in the quarter, from $52.6 billion in the year-ago quarter, which missed the consensus estimates of $54.57 billion.
  • Earnings came in at $2.93 per share, short of Wall Street expectations of $3.29 per share.

Why it matters: Shoppers in the US have been cutting back their spending on non-essential items due to high inflation and an uncertain economic environment.

Consumers are focusing on necessary items, like groceries and packaged food, which have lower margins. Costco reported a decline in margins due to lower demand for high-margin items.

Costco’s merchandise costs and selling, general and administrative costs rose around 1% year-over-year in the latest quarter, impacting its bottom line.

Its membership revenues grew to $1 billion in the quarter, up from $984 million in the year-ago quarter. The company ended the quarter with 853 warehouses.

Costco’s adjusted same-store sales rose 3.5% from the prior year, coming in approximately 100 basis points ahead of the market estimates. However, its ecommerce sales contracted by 10%.

Average daily transaction fell 3.5% in the US, while declining 4.2% globally due to weakness in sales in non-discretionary food products.

Several analysts, including Truist Securities, UBS, Roth MKM and Loop Capital, lowered their price targets on the stock following the quarterly results. However, analysts at Goldman Sachs reiterated a Buy rating and raised their price target by $10 to $545.

How shares responded: Costco’s shares gained 4.3% to close at $507.26 on Friday, following the release of quarterly results. The stock has lost around 4% over the past six months.

What to watch: Investors will watch inflation levels in the country, which is expected to significantly impact Costco’s overall results this year. Markets will also keep an eye on the Fed’s interest rate decision in June.

The markets today

Bitcoin will be in focus today after recording gains on Friday

Context: Bitcoin traded higher on Friday but remained below the key $27,000 level at the end of the week.

Details: The largest cryptocurrency by market capitalisation trended higher on Friday, following the release of several major economic reports. Hopes of a debt ceiling resolution in the US also lent support to Bitcoin on Friday.

Bitcoin prices remained range-bound last week and was unable to breach the key $27,000 resistance level. Other major cryptos, like Ethereum and Binance Coin, also remained under pressure.

On Friday, prominent investor Charlie Bilello posted a tweet showing Bitcoin’s price growth over the past 10 years compared to gains by some of the world’s biggest blue-chip companies. It showed Bitcoin skyrocketing around 19,968%, compared to Nvidia’s 11,145% growth, while the shares of Tesla and Apple gained only 2,884% each during the same period.

Gold, which competed with crypto for a share in investor portfolios as a hedge against inflation, rose merely 34% over the past 10 years.

Last week, JPMorgan analysts said in a note to clients that gold’s current price trends signal a steep uptrend in Bitcoin. The crypto king should be trading around the $45,000 level, which is about 70% higher than the current price, JPMorgan analysts added.

Cryptos have started the week on a positive note. Bitcoin rose by 3.6% to $28,105 this morning, while Ethereum was trading higher by 3.3% at $28,105.

What are expectations: Traders will continue monitoring the developments around the US debt ceiling as well as reports of economic growth from major economies.

Other Markets: US trading indices closed higher on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 1%, 1.30% and 2.58%, respectively.

The news shaping the markets

Russia’s Foreign Minister Sergey Lavrov warned Western nations of agreeing to provide F-16 fighter jets to Ukraine. Despite the comments from Moscow’s top diplomat, the safe-haven US dollar index fell slightly this morning.


Taiwan’s consumer confidence index rose to 63.67 in May, from 63.18 in the prior month, lending support to the TWD/USD forex pair.


Vietnam recorded a trade surplus of $2.24 billion in May, versus a year-ago deficit of $1.75 billion in the year-ago month, sending the VND/USD pair higher in forex trading this morning.


Qatar’s trade surplus in narrowed to QAR 22.0 billion in April, from QAR 34.2 billion in the year-ago month, amid a decline in exports. This exerted pressure on the QAR/USD forex pair.


China’s industrial profits contracted by 20.6% year-over-year to 2,032.88 billion yuan in the first four months of the year, sending the CNY/USD pair lower in forex trading this morning.

What else to watch today

Turkey’s economic confidence index, as well as Brazil’s federal tax revenues, net payrolls and Central Bank of Brazil’s focus market readout.


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