Costco Q3 Earnings Shy Of Wall Street But Comps Gain

As it coped with the effects of the COVID-19 pandemic, Costco missed a Wall Street earnings per share estimate for the third quarter but posted positive comparable store sales and a big increase in e-commerce comps.

Reported company net income for the third quarter ended May 10 was $838 million, or $1.89 per diluted share, versus $906 million, or $2.05 per diluted share, in the year-previous period. Costco came in short of a third quarter Zacks Investment Research earnings per share estimate that recently fluctuated from $1.91 to $1.93.

The retailer pointed out that third quarter earnings suffered from $283 million pretax, or 47 cents per diluted share, in incremental wage and sanitation costs related to COVID-19. A year before, third quarter net income included the benefit of a non-recurring tax item of $73 million, or 16 cents per share.

Adjusted for volatility in gasoline prices and foriegn exchange rates, third quarter comparable sales were up 8% in the United States, 3% in Canada and 12.2% in other international markets year over year for a company total of 7.8%. E-commerce comps jumped 66.1% adjusted in the period.

Net sales for the quarter increased 7.3% to $36.45 billion from $33.96 billion last year. Net revenues were $37.27 billion versus $34.74 billion in the quarter a year prior. Operating income was $1.18 billion versus $1.12 billion in the year-earlier period.

In a conference call, Costco CFO Richard Galanti said that departments that generated stronger sales in the quarter included health and beauty aids, office, housewares, majors and small electrics. He noted that softlines, food and sundries and hardlines sales in the period came with lower margin percentage year-over-year. Sales shifts towards lower margin segments hit both the softlines and hardlines categories. Costco closed ancillary departments such as optical across its stores during the quarter in response to the coronavirus outbreak but expects to have those in operation again by mid-June. Food court operations were limited in the period as well.