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Costco shares slide after earnings miss

 

Friday, December 09, 2022

The news shaping the markets today

Ukraine’s President Volodymyr Zelenskyy said Russia’s shelling had killed 10 people and injured several in the eastern regions of the country. The news sent the safe-haven US dollar index slightly higher this morning.


New Zealand’s retail card spending rose 0.3% from a year ago in November, lending some support to the NZD/USD forex pair.


South Korea posted a current account surplus of $880 million in October. The current account remaining positive for the second month in a row sent the KRW/USD pair higher in forex trading this morning.


Mexico’s annual inflation rate declined for the second month to 7.8% in November, from 8.41% a month ago. However, the MXN/USD forex pair remained under pressure.


Brazil’s retail sales grew by 0.4% in October, slowing from the 1.2% growth reported in the previous month, sending the BRL/USD pair lower in forex trading this morning.

 

What’s happening: Shares of Costco Wholesale Corp edged lower in after-hours trading on Thursday, after the company released results for its fiscal first quarter.

What happened: Costco Wholesale Corp reported growth in sales and earnings for the quarter.

Although both missed market expectations, the retailer managed to top one of the key metrics.

How were the results: The Issaquah, Washington-based company reported single-digit growth in sales and earnings for the three months ending November 20.

  • Group revenues grew 8.1% to $54.437 billion, missing the consensus estimates of $54.64 billion.
  • Earnings rose 3% year-over-year to $3.09 per share but came in below the Street expectations of $3.11 per share.

Why it matters: The multi-decade high inflation rates in the US forced consumers to curtail their spending on discretionary goods, including cosmetics and jewellery. Other retailers, including Target and Dollar Tree, had warned in November that rising inflation had reduced customer demand for various products.

Although Costco has reported sales and earnings growth for every quarter since Q1 of 2018, sales growth has been decelerating in the recent months. Costco’s sales rose 5.7% year-over-year to $19.17 billion in November but was lower than the 7.7% growth recorded in October and the 10.1% reported in September.

Costco’s recent quarterly results was also impacted by a decline in US gas prices, which have fallen more than 30% after climbing to a record high of $5.10 per gallon in the summer. Despite the decline in gas prices, the company reported growth in adjusted same-store sales of 7.1% year-over-year, approximately 230 basis points above the market estimates. However, its ecommerce sales contracted by 3.7% in the quarter.

How shares responded: Costco’s shares fell 0.2% to $480.32 in the after-hours trading session on Thursday, following the release of quarterly results. The stock has lost around 15% year to date.

What to watch: Investors will keep an eye on inflation levels in the US, as an easing is expected to boost consumer spending on discretionary items.

The markets today

US stocks will be in focus today ahead of a basket of economic reports

Context: US stocks closed higher on Thursday, with the S&P 500 snapping a five-session losing streak.

Details: The S&P started the week on a lower note, extending losses from the earlier week. The benchmark index recorded losses for the fifth straight session on Wednesday, representing its longest losing streak since October.

Sentiment turned positive even though data released on Thursday showed a modest rise in jobless claims. Continuing claims climbed to their highest level since February in the latest week. The number of persons filing new claims for jobless benefits rose by 4,000 to 230,000 in the week ending December 3, which came in-line with market estimates. Continuing claims rose by 62,000 to 1.671 million in the week ending November 26, moving higher for the eighth week in a row.

Investors remained focused on the US Federal Reserve’s policy meeting scheduled for next week. Markets are expecting the country’s central bank to raise interest rates by 50 basis points, after four hikes of 75 basis points.

Shares of GameStop jumped more than 11% on Thursday, despite the company reporting weaker-than-expected results for the third quarter.

The Dow Jones index added 183.56 points, or 0.55%, to close at 33,781.48 on Thursday, driven by gains in the shares of Chevron and Boeing. The S&P 500 rose 0.75% to 3,963.51, while the Nasdaq 100 climbed 1.22% to settle at 11,637.50 in the session.

What are expectations: Investors await economic data on producer price index, University of Michigan consumer sentiment and wholesale inventories from the US today. The Producer Price Index for final demand, which rose 0.2% in October, is expected to grow 0.3% in November. Analysts expect the University of Michigan consumer sentiment index to decline to 56.4 in December, from 56.8 in November. Wholesale inventories are projected to grow 0.8% to $925.8 billion in October.

Other Markets: European trading indices closed mostly lower on Thursday, with the FTSE 100, CAC 40 and STOXX Europe 600 down by 0.23%, 0.20% and 0.17%, respectively, and the DAX 40 up by 0.02%.

Support & resistances for today

Technical Levels News Sentiment
USD/JPY  – 136.57 and 136.81 Positive
USD/CAD – 1.3597 and 1.3607 Positive
Gold – 1800.71 and 1802.61 Negative
WTI Crude Oil  – 72.00 and 72.17 Positive
Nasdaq 100 – 11608.19 and 11666.62 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0584, 0.27%) Dow ($34,020, -0.07%) Brent ($76.73, 0.8%)
GBP/USD (1.2261, 0.21%) S&P500 ($3,962, -0.09%) WTI ($72.19, 1%)
USD/JPY (136.09, -0.44%) Nasdaq ($11,745, -0.12%) Gold ($1,803, 0.1%)

What else to watch today

France’s payroll employment, Spain’s industrial production and consumer confidence indicator, Russia’s total vehicle sales and Inflation Rate, India’s foreign exchange reserves, Brazil’s inflation rate and business confidence, Canada’s capacity utilization, as well as US Baker Hughes crude oil rigs.


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