Costco Earnings Beat Sends Stock Higher

Costco Wholesale Corporation (ticker: COST) has joined the small group of U.S. retail stocks that outperformed market expectations in the first quarter of 2017.

Costco’s fiscal third quarter earnings topped Wall Street’s expectations, as the company’s unique membership-centered business model continues to deliver growth for long-term investors.

Costco shares initially climbed about 2 percent after the company reported earnings per share of $1.59 on revenue of $28.22. Earnings per share came in slightly ahead of consensus analyst expectations of $1.31, while revenue came up just short of Wall Street’s forecast of $28.54 billion.

Same-store sales climbed 5 percent on the quarter, well ahead of consensus analyst expectations of 3.7 percent growth.

While many large U.S. retail stores have suffered in the face of competition from (AMZN) and other e-commerce retailers, Costco’s business has thrived. Costco specializes in the type of bulk products that are difficult for Amazon to ship.

Costco’s recent efforts to expand more into fresh food and natural and organic products appears to be paying off as well.

“The real area they make money is on the membership fees,” Tematica Research analyst Chris Versace said earlier this month. Membership fees made up roughly 72 percent of Costco’s total operating income in 2016.

“As they continue to open more locations, they get more members, they get more high-margin membership fee revenue, and that really drives their cash flow,” Versace said.

Membership fee revenue increased 4 percent in the most recent quarter, and Costco is planning on membership prices starting on June 1.

Costco, Best Buy Co. (BBY), Target Corp. (TGT) and a handful of other U.S. retailers have provided a silver lining to what has been an extremely disappointing quarter for most of the U.S. retail sectors.

Costco shares are…

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