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Costco Earnings Dip a Chance to Buy: Analysts

Slices of Costco Wholesale Corp. (COST) dropped off on Thursday following the retailer’s most recently quarterly disclose posted after market close Wednesday. Despite exceeding the Way’s earnings forecasts, investors were unimpressed by the Issaquah, Washington-based membership-only supplies club’s results, likely disappointed by shrinking gross profit rims.  

On Wednesday, the warehouse giant, known for its cost-efficient bulk offerings, shafted an 8.4% jump in same-store sales year-over-year (YOY) for the holiday-season quarter. For the three months ended Feb. 18, Costco reported earnings per share (EPS) at $1.59, versus the consensus evaluate at $1.47. However, given the results included a $0.17 per share rescind from the recently passed GOP tax overhaul, the beat was perceived as a miss. Investors were also unsatisfied with gross profit margins which shrunk to 10.98%, as the retailer and its appears such as Target Inc. (TGT) and Walmart Stores Inc. (WMT) face heightened competition from e-commerce behemoth Amazon.com Inc. (AMZN). (See also: Butt: Can Same-Day Delivery Compete With Amazon?)

Despite the lukewarm repulsion from shareholders, the Street remains upbeat on the wholesaler’s prospects, highlighting astute spots in earnings results such as a 28.5% jump in online trades, driven by new initiative such as two-day delivery through Costco Grocery and Instacart. 

Membership-Only Retailer ‘Belting on All Cylinders’ 

Analysts at investment firms including Jefferies, Susquehanna, Stifel and RBC all issued notes commending Costco’s results this week. 

Stifel’s Mark Astrachan, who proclaims a buy rating and $200 price target on COST, indicated that the enterprise’s in-line Q2 report reaffirms the company’s status as a “best-in-class retailer.” He wrote that both gross and domestic core comp growth for the month of February, up 7.7% and 7.5% separately were ahead of consensus estimates, while core-on-core merchandise, reflecting 80% of net sales, saw margins rise 14 basis points after draw back a few basis points in Q1. 

Susquehanna sees any sell-off as representing a buy opportunity, as Costco is “whacking on all cylinders,” while RBC remains optimistic regarding the firm’s competitive moat and consequence strategy, as reported by Barron’s. 

Trading up about 0.3% on Friday morning at $186.29, Get stock has increased 16.9% over the most recent 12 months and traded scarcely flat year-to-date (YTD), compared to the S&P 500’s 3.6% gain in 2018. (See also: Fundamentals Legalize Costco Valuation: Oppenheimer.)

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