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HenryTo
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 Posted: Wed Oct 07, 2009 11:35 am Post subject: Costco (COST) |
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Morningstar's latest notes on Costco's latest 4Q update:
| Quote: | | There were several encouraging signs in Costco's COST fourth-quarter update, including improving profitability and sequential comparable-sales growth. We are confident that firm's exceptional value proposition will continue to resonate with consumers over the coming quarters, leading to improved fundamentals and market share gains. We will wait until the firm's conference call before finalizing any adjustments to our model, but we do not anticipate a significant change to our fair value estimate. Comparable-sales fell 5% during the fourth quarter (or a 1% gain excluding gasoline deflation and foreign currency translation), including declines of 6% and 3% in the U.S. and international segments, respectively. However, fiscal 2010 got off to a solid start in September, with total comparable-sales increasing 1% (a 4% increase excluding gasoline deflation and foreign exchange translation). We expect gasoline deflation and foreign currency translation to be less of a head wind in coming periods, resulting in stronger top-line growth. The gross margin (excluding membership fees) improved 60 basis points during the quarter because of higher merchandise margins in the firm's core business, increased private-label penetration, and fewer gasoline sales (which carry a lower margin than other merchandise categories)--a trend we expect to continue over the next few quarters. |
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Costco (COST) Replies |
HenryTo
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Joined: 06 Aug 2004
Posts: 11734
Location: Los Angeles, California
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| Posted: Wed Feb 29, 2012 2:23 pm Post subject: |
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Morningstar on COST's fiscal 2Q earnings.
| Quote: | | Costco COST reported fiscal second-quarter earnings that came in ahead of consensus expectations. Excluding some minor one-time items, the company reported operating earnings per share of $0.91, which was $0.03 ahead of the consensus estimate and a 14% increase from the year-ago period. Costco reported EPS of $0.90 on a GAAP basis. As a result, we expect the stock to move higher. We still have a very favorable long-term view of the company's growth prospects because it continues to drive market share gains, but the stock currently trades above our $80 fair value estimate. However, we would be buyers on any significant pullback. On previously released domestic same-warehouse sales growth of 7% (excluding fuel), the company delivered 29 basis points of expense leverage, which just about offset the 33 basis points of gross margin decline. The 5-basis-point decline in operating margin was a meaningful improvement from recent prior quarters. Importantly, we expect stabilizing EBIT margins as membership increases kick in throughout the remainder of the year. Comps at international came in at 10% in the second quarter, after excluding gasoline and currency exchange rates. The company also reported that nonfuel comp sales at domestic stores increased 7% in February, so the steady market shares gains continue. |
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HenryTo
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Joined: 06 Aug 2004
Posts: 11734
Location: Los Angeles, California
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| Posted: Fri Jul 08, 2011 2:04 pm Post subject: |
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Latest happenings at the discount retailers, per Morningstar:
| Quote: | | Costco COST, BJ's Wholesale Club BJ, and Target TGT all reported sequential same-store sale increases for the month of June. The results were in line at the wholesale clubs, but ahead of expectations at Target. Above-consensus sales, along with likely short covering, moved Target shares roughly 7% higher. On a two-year rate basis, the comp trend improved at Target and BJ's, but slowed at Costco's U.S. locations (excluding gas), although it still remains very high at a healthy 9% clip. Notably, food inflation accelerated in June to midsingle digits, in line with our 5.0% to 5.5% forecast. We project food inflation to continue rising in July before peaking in August and it will start to slow thereafter. Our model is tracking this perfectly so far. All three companies reported accelerating food sales. Importantly, the double-digit food comp increases at Costco and Target suggest that some (if not all) of the food pricing pressure was not passed on to the consumer. So we expect gross margin pressure when the companies next report quarterly results. But for the market-share gainers that drive enough comp, it should generate sufficient subsequent expense leverage to offset most of the inflation impact. We have seen this trend at the dollar stores. In their most recent quarter, both Dollar General DG and Family Dollar FDO strategically absorbed pricing pressure in the food category, but delivered enough comp sales and expense leverage to drive operating margin expansion, albeit modestly. Bottom line, investors should own share gainers in the current high inflation environment. We look for three things on the retail profit and loss statement: sales, margin, and expense leverage. The share gainers in consumer defensive are delivering on two of three P&L metrics; we expect the market-share losers to be zero for three. In this current macro backdrop, we'll take some gross margin contraction if it comes with rising sales that generate modest overall operating margin expansion. Excluding fuel, Costco and BJ's reported 8.0% and 3.5% domestic same-store sales for the month of June, respectively. Target posted positive 4.5% comparable store sales, ahead of consensus expectations. However, excluding the inflation lift to food sales that now make up roughly 25% of sales, we estimate comps would have been 150 basis points lower. Still, an inflation-adjusted 3% comp, if sustained, should be sufficient for Target to leverage expenses. Plus, Target's credit card business should continue to be an operating profit contributor through year-end, which will help offset the ongoing and incremental pressure from entering the lower-margin retail food business. Our fair value estimate for each firm remains intact. |
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HenryTo
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Location: Los Angeles, California
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| Posted: Fri Apr 29, 2011 1:13 am Post subject: |
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Morningstar on COST's latest dividend increase:
| Quote: | | Costco COST announced Tuesday that it will raise its quarterly dividend to $0.24 per share from $0.205, representing a 17% jump. We had modeled an 8% increase this fiscal year and are encouraged by the magnitude. We view the move as a signal of management's commitment to returning cash to shareholders and an indication of its relative comfort with the macro and operating environments. The $0.96 annualized dividend brings Costco's payout ratio to almost 30% of estimated fiscal 2012 net income (from 25%), putting it in the leading group of dividend payers among big-box retailers (Home Depot HD is near 40%, Wal-Mart WMT 35%, Lowe's LOW near 30%, Staples SPLS 30%, Target TGT 25%, and Best Buy BBY under 20%). The firm also announced an updated $4 billion share-buyback program, which replaces the existing authorization that ends this summer. We project that Costco will generate just over $4 billion in cumulative free cash flow (before dividends and share repurchases) over the next five years, providing it with ample cash to support growth initiatives--both domestic and international--while still driving long-term value to shareholders. In fact, we think there is still room for Costco to increase its long-term dividend payout ratio over time. Given this strong free cash flow and the firm's moderate leverage, we continue to support the firm's AA- credit rating despite these shareholder-friendly actions. The stock currently trades at a slight premium to our fair value estimate, so we would not look to build a position now, though a high-quality name like Costco seldom trades at a meaningful discount to its intrinsic value. Still, the company remains on our short list of stocks to watch for potential pullbacks that may present more attractive entry points. |
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HenryTo
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Posts: 11734
Location: Los Angeles, California
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| Posted: Wed Oct 06, 2010 10:06 am Post subject: |
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Morningstar on Costco's 4Q earnings:
| Quote: | | We are not changing our fair value estimate for Costco COST following fiscal fourth-quarter results that were broadly in line with our projections. Underlying club traffic remains strong, though the top line continued to benefit from modest gasoline price inflation (up around 5% year over year, by our estimates) and favorable foreign currency gains. Fourth-quarter revenue increased 8% year over year, in large part because of favorable foreign currency and gasoline price inflation. Reported operating margins came in at 2.7%, 20 basis points higher than last year's comparable period, while a 4 million reduction in diluted share count contributed a penny to reported earnings of $0.97 per share. We await the company's conference call for additional detail on the quarterly results and a preliminary look at management's 2011 outlook. However, we believe Costco continues to present a compelling value proposition for consumers in today's economic environment. We expect mid-single-digit revenue growth next year, driven by increased member traffic growth rates and modest food inflation. The firm begins to lap higher gas prices in the next two quarters, which will probably contribute to a more normalized (muted) sales growth rate next year. We think Costco should be able to leverage its higher sales to deliver slight margin improvement next year, resulting in year-over-year operating profit growth. Costco also reported September comparable sales one day early. U.S. same-store sales increased 2%, excluding the positive impact of gasoline inflation and foreign exchange. No details were provided, but we suspect that recent themes continued through September, with relative strength in meats and dairy partially offset by weakness in electronics (televisions). |
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HenryTo
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Joined: 06 Aug 2004
Posts: 11734
Location: Los Angeles, California
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| Posted: Fri May 28, 2010 10:39 am Post subject: |
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Morningstar on Costco's latest earnings:
| Quote: | | We're leaving our fair value estimate for Costco COST unchanged following third-quarter results that were generally in line with our expectations. Top-line growth continued to benefit from gasoline price inflation and favorable foreign currency, but we believe underlying club traffic trends also remained strong. The firm is on track to reach our full-year expectations of high-single-digit revenue growth and modest operating margin expansion. As in the last quarter, third-quarter revenue growth of 12.5% was largely a function of gasoline price inflation and favorable foreign currency. Though we expect gasoline prices to remain elevated over the near term, the firm is not likely to experience the same magnitude of foreign currency benefit over the coming quarters amid a strengthening U.S. dollar. However, we remain confident in our high-single-digit revenue growth forecast for the year. Stripping out the impact of gas and foreign currency, membership traffic growth remained in the mid-single-digit range, suggesting that Costco's value proposition still resonates with consumers in a gradually improving domestic economy. We expect member traffic growth rates to slow to the low-single-digit rates in the coming quarter amid more difficult comparisons, but a modest increase in the average transaction size because of mild food price inflation should counteract this impact. We suspect that gasoline prices were the primary culprit in the 10-basis-point decrease in gross margins (excluding membership fees) during the quarter. However, operating expenses were down 40 basis points as a percentage of sales--partly the result of lower litigation costs compared with the year-ago period--reversing a trend of the past few quarters. We are still optimistic that Costco will deliver roughly 10 basis points of margin improvement for the year, representing an operating margin of around 2.6%. |
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