The shares of Costco Wholesale Corp. fell on Friday and was the S & P 500's second largest decline after reporting weaker than expected sales in the first quarter of the fiscal year.
had recently dropped 8.1%, which, according to FactSet data, reached the worst one-day percentage since October 2008.
The Issaquah, Wash.- The late-Thursday company posted net income of $ 767 million, or $ 1.73 per share, in the quarter ended November 25, versus $ 640 million, or $ 1
According to analysts, CFO Richard Galanti said membership fees rose 9.5% or $ 66 million to $ 758 million. This will be increased by an increase in membership fees in June 2017 according to a FactSet transcript. It usually took about 23 months for a price increase to appear in the income statement, he told the analysts. Extension rates increased from 90.4% at the end of the fourth quarter to 90.5%.
However, gross margins declined by about 50 basis points to 10.75%, while core commodity margins declined 6 basis points, more than the 2 basis points decrease in the fourth quarter.
Analysts weighing the numbers were unimpressed. Analysts around Mark Astrakhan said that their long-term view on the stock remained unchanged, even though they had lowered their estimates for the financial year 2019 and 2020 by 2% to 3% while maintaining a buy rating and target price of $ 245 ,
The estimate was mainly caused by competition for fresh food. Galanti said the sale was solid, but acknowledged that the company had sacrificed a margin to compete better with its competitors.
"The company said compliance costs would also put pressure on the core gross margin, and we believe that price investment will continue to be a headwind," Astrakhan wrote in a statement.
"We expect the company to continue to invest in pricing and digital / electronic trading to further enhance its value proposition, which we see as key to maintaining favorable comp and traffic trends and continuing outperformance compared to peers consider." said the note.
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BMO Capital Markets analyst Kelly Bania said Costco is being disciplined for cost and customer loyalty.
The numbers "were supported by rising renewal rates, increasing penetration of executive members, solid ticket and traffic growth and a continued solid core gross margin in the face of a competitive fresh food backdrop," Bania said in a statement.
Key membership metrics were strong and gas margins increased. The analyst sticks to the stock's outperform valuation, based on the expectation that e-commerce is still at an early stage and could support a strong outlook and a higher valuation as the company builds its competitive edge with an in-depth digital relationship strengthens the customer.
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BMO holds onto its $ 258 target.
Raymond James also reiterated an outperform rating and a target price of $ 252.
"Costco's ongoing sales momentum throughout the 2018 calendar year (compared to more challenging year-over-year comparisons) shows that the business model is well maintained and consumers continue to value their product offering and benefits to members," analysts Budd Bugatch and Bobby write Griffin in a note.
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Raymond James is another faith in Costco's ecommerce capabilities that are improving without the Affecting visitor numbers in stores.
"Costco continues to see a multi-year runway to gain more market share and members through the opening of US and international clubs in fiscal year 1919 and beyond," the analyst wrote in a statement. "Accordingly, we continue to see a favorable risk / reward for owning COST."
Costco shares gained 13% in 2018 and the S & P 500 against
has fallen 1.6% and the Dow Jones Industrial Average
has fallen by 1.4%.
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