Costco Shows Its Strength Online

Costco Wholesale Corporation (Nasdaq: COST) investors aren’t sweating grocery competition from (AMZN). On Thursday, Costco reported double-digit revenue growth and an impressive jump in online sales in its fiscal first quarter.

Costco reported earnings per share, excluding items, of $1.36 on revenue of $31.81 billion. Both numbers topped consensus analyst expectations of $1.34 and $31.48 billion, respectively.

Despite a grocery pricing war and fresh competition from Amazon, Costco’s revenue rose 12.2 percent compared to the same quarter a year ago. Comparable store sales climbed 7.9 percent, handily beating consensus estimates of 5.6 percent growth.

Costco stock jumped more than 4 percent Friday, and investors may be most impressed by Costco’s huge acceleration in online sales. Online sales were up 42.1 percent year-over-year, more than double the 21 percent growth Costco reported the previous quarter. Costco has been pouring money into its online offerings, rolling out two-day delivery and even a limited same-day delivery service with partner Instacart.

The latest set of numbers from the company seems to reinforce the idea that Costco is one of just a handful of U.S. retailers that has side-stepped Amazon’s charge.

Morgan Stanley analyst Simeon Gutman says it’s impressive that Costco was able to preserve its gross margins given the tough pricing environment for groceries and the difficult comparisons to a strong first quarter in fiscal 2017.

“The implication is after being aggressive on price investments in fiscal 2017 when [credit card] income was flowing at a higher rate, COST is now harvesting these benefits, which is boosting earnings growth,” Gutman says.

Gutman expects a big second quarter from Costco as well but says investors should be cautious about buying shares with the stock near all-time highs. With analysts expecting 12 percent EPS growth from Costco and the stock currently trading at a forward price-earnings multiple of about 29, Gutman says it’s difficult to make a case for significant upside.

“While COST has rarely been inexpensive … a premium valuation with moderating growth is…

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