Costco Stock Is Higher Because Earnings Were Good Enough

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Stock in retail giant

Costco Wholesale

is rising after the retailing giant beat Wall Street earnings projections for its fiscal fourth quarter, reported Thursday evening.

Thursday’s beat appears good enough to keep the stock in its current range, despite shares’ strong performance over recent months.

Costco stock is holding steady, up about 0.6% in premarket trading Friday. Since the last time the company reported earnings, in May, Costco shares gained about 17%. The

S&P 500
and

Dow Jones Industrial Average
have gained about 6% and 1%, respectively over the same span.

Costco reported $3.76 in earnings per share on $62.7 billion in sales. Wall Street was looking for EPS of $3.58 on $61.4 billion in sales. A year ago, in the comparable quarter, Costco had EPS of $3.51 on $53.4 billion in sales.

Investors should be pleasantly surprised by the initial reaction. Costco stock typically drops after an earnings report. Before the fiscal fourth quarter just reported, the stock had dropped nine of the past 12 quarters reported. That hasn’t stopped the stock from gaining over the long run, though. Shares have returned almost 27% a year on average over the past three years. The S&P 500 has returned about 17% a year on average over the same span.

Management hosts a conference call at 5 p.m. eastern time to discuss results. The main focus for investors will likely be on profit margins. Costco’s gross-profit margin was about 12.6% in the quarter. That was down from 12.95% reported in the prior quarter, ended in May.

Labor-cost inflation and supply-chain constraints are leading to higher costs for many businesses, retail businesses included.

Another topic for discussion will be slowing growth coming out of frenzied buying amid 2020 Covid-19 lockdowns and travel restrictions. E-commerce growth at the company came in at about 8.9% over the past four months—which is the statistic the company reports. Over the full fiscal year, however, e-commerce sales grew a whopping 43%.

Through Thursday trading, Costco stock was up about 20% year to date, a little better than comparable gains of the overall market.

Write to Al Root at [email protected]