Costco Wholesale Corp. (NASDAQ: COST)
Earnings
Costco Wholesale Corp. (COST) traded lower in the premarket session on Wednesday after a surprise sales decrease of roughly 3.2% reported in their Q1 earnings release. The company says the slower growth in membership fees is mainly to blame for the lackluster earnings and the effects of currency fluctuations, which could cause for further trouble down if not managed properly. COST reported $1.09 earnings per share on $26.63 billion in revenue while analysts where expecting earnings to come in at $1.17 per share on $27.57 billion in revenue. However, COST did receive an upgrade following their earnings release from Barclays to $160 from $150. You can read more about the upgrade here. Richard Galanti, the Chief Financial Officer, had more to say on their current financial situation and the effects that the currency market has had on their financials,
“First, FX in the first quarter, the foreign currencies where we operate were weaker year over year versus the US dollar, primarily in Canada, Mexico and Korea, such that foreign earnings in Q1 when converted into US dollars for reporting purposes were lower by approximately $42 million, or $0.10 a share, than those earnings would have been had FX exchange rates been flat year over year. The big weaknesses started about a year ago, while I certainly don’t know what’s going to happen tomorrow and there’s been continued weakness, certainly the biggest impacts looks like the last four quarters. One of the benefits, of course, is purchasing land and building units in some of these countries was little cheaper over the last year.” SeekingAlpha
COST has been performing well as a company but has hit a little bit of a rut as far as membership growth is concerned. I expect things will pick up through the holiday season so we’ll have to keep an eye on that metric going forward. Currency fluctuations are out of their control so we’ll just have to wait that out and see how they adapt. Currently, analysts have an average price target of $168.22.
COST Technicals
COST shares took a beating when they released earnings, which led them to open the day at $162.72 after closing the previous day at $168.87, a 3.6% decrease. Shares continued lower at the open before finding support at $158.50 and rebounding to the $163.50 range with a close at 159.72. COST hasn’t closed below the 20 EMA since mid November and could be the start of a new down trend. You should start to see support to come in at the $160 and $159.50 range while resistance will be met $164.50ish and $165.87. The daily 200-day moving average is currently sitting at $147.50 and should also provide plenty of support if share prices make it that far down.
Starting the year off with a share price of $141.87, COST has finally picked up some momentum in the later half of the year only to be pummeled lower with their recent earnings report. This selloff happened the day after shares hit new yearly highs of $169.73, resulting in a 5.8% decrease. Shares are still up on the year but with the market as weak as it is it’s hard to say if it will reach new highs by the end of the year or if we’ll start to see more downward pressure.
About Costco Wholesale Corp.
Costco Wholesale Corp. operates membership warehouses based on the concept that offering members low prices on a limited selection of nationally branded and select private-label products in a wide range of merchandise categories. It operates warehouses in the U.S., Canada, the United Kingdom, Japan and Australia and through majority-owned subsidiaries in Taiwan and Korea. The company warehouses present exclusive product category selections to be found under a single roof, which include appliances, auto and tires, baby, kids and toys, clothing and handbags, computers and printers, electronics, food and gift baskets, funeral, furniture, gift cards, tickets & floral, hardware health & beauty, home & decor, jewelry & watches, office products, patio, outdoor & pets, sports & fitness, travel & luggage. It also provides ancillary and other services that include gas stations, pharmacy, food court, optical, one-hour photo, hearing aid and travel. Costco Wholesale was founded by James D. Sinegal and Jeffrey H. Brotman in 1983 and is headquartered in Issaquah, WA. MarketWatch
