Costco: Fiscal 2017 Mid Year In Review
Costco (NASDAQ:COST) has had a relatively disappointing first half of fiscal 2017 (fiscal year ends August 2017) so far, with the company missing earnings per share and revenue estimates in both quarters. However, the company’s overall revenue increased 4.5% year-over-year (y-o-y) to $58 billion in the first six months of fiscal 2017, driven by incremental revenues from new stores, growth in membership fees and a 2% increase in comparable sales, partially offset by price deflation (primarily in hardlines). During the same period, Costco’s membership revenue grew 6% y-o-y to $1.26 billion, due to sign-ups at existing and new warehouses and increased penetration of the company’s higher-fee Executive Membership program. Currently, Costco’s member renewal rates are 90% in the U.S. and Canada and 88% worldwide.
On the cost side, Costco’s selling, general and administrative (SG&A) expenses increased 5% y-o-y to around $6 billion, due to payroll and employee benefit expenses across all segments, primarily in its U.S. operations. The company reported net earnings of $2.41 per share, up 4% y-o-y.
During the first half of 2017, Costco’s comparable store sales increased by 2%, including the impact of gasoline prices and currency effects. Comparable sales were positively impacted by the shopping frequency. The company’s comparable sales saw growth in the U.S. and Canada, but fell in international markets. Further, it should be noted that the strengthening dollar and gasoline effects did not have a major impact on the company’s earnings for the quarter, as the company also saw 2% growth on a comparable basis excluding these factors.
Costco opened 12 new warehouses and relocated one in the first half of 2017 and going forward, plans to open up to 17 new warehouses and relocate two for the remainder of fiscal 2017. In the first half of 2017, the company’s total capital expenditures amounted to approximately $1.2 billion, and it intends to spend approximately $2.7 -$2.8 billion during the fiscal 2017.
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