Remember that famous Mark Twain quote? It is relevant for today’s column, as evidenced by the comments section of articles for one of the stocks that we have flagged for our members, which is Costco Wholesale Corporation (NASDAQ:COST). We have traded Costco stock several times in the past, and rolled gains into a long-term position. It has been a solid growth name, but as the economy is starting to come into question, we are hearing the calls from bears that the party is over. That the growth which has been enjoyed can no longer continue given all of the macro pressures we are seeing.
One thing we love about Costco as a retailer is that it is relatively insulated from high shrink issues being that it is a member club, and sells a lot of larger items in bulk. We do suggest a buy on the dip here as we get through this rough patch for markets. Here is what matters, growing comparable sales and earnings power. Until we see a clear and stark reversal, shares will churn higher here. Shares are down following the just-reported fiscal Q4 earnings. We believe there is a buying opportunity that can stem from this market pullback, but would like to see a retracement under $550 preferably. But that will not stop us from suggesting the retailer is a buy for ongoing long-term gains. Let it come down and do some buying.
The earnings were strong overall. One way to potentially play the stock is through a buy-write strategy, but we think you need to let the stock retrace more before entry. We also like LEAP call options for those that do not have the coin to buy 100-share blocks. That can be a great strategy to magnify returns and get exposure. There are a lot of things we like about the company, though we are keeping a close eye on some of the metrics on comps.
We recognize in this high-rate environment that there is some economic damage coming, in our opinion. While that hurts broader retail, Costco enjoys immense membership retention and sales growth. But, we have pressure just starting to build on jobs, higher credit card delinquencies, and we also have student loan repayments coming. All things considered, we rate shares a buy, but think traders need to wait for a breather in shares. Let us discuss the results.
When examining any kind of retailer it’s all about sales and margins. More specifically, we look at comparable sales. Costco net sales were about 9.5% higher from a year ago at $78.9 billion, but nudged higher enough to set a new record for Q4 and beat the consensus estimates by $1.1 billion. That is a very strong beat for a quarter that was likely to be a trough for earnings was a whole for markets. Not bad at all. But what is the key? Well, comparable store sales were up 1.1%, which was solid. However, if we back out the volatile fuel and adjust for currency, comparable sales for the company were up 3.8%.
Let us take a closer look regionally. Comparable sales were up in all geographic areas. In the United States, comparable sales were up 0.2% as reported. However, making the same adjustments as above, we saw comparable sales gains of 3.1%. Canadian sales were strong. The comps here were up 1.8% as reported, and up 7.4% as reported. Other international sales were also quite positive, up 5.5% as reported, or 4.4% controlling for currency. For the entire fiscal year, comps were also great. The were up, as adjusted, 4.2%, 8.1%, and 7.6%, for the United States, Canada, and other international locations, respectfully.
But it was not all positive. Despite these great comps, there was pressure on comparable sales for digital/online sales. Now, this is a membership club, and people are physically present more often than not, but this was one item bears may latch onto. In our opinion, it’s a loose grip, but ecommerce sales were down 0.8% in Q4 as reported, or 0.6% as adjusted. For the year, digital sales were down 4.8% as adjusted.
Earnings power ramped up thanks to the good news on margins. Folks, net income for tQ4 was $2.16 billion or $4.86 per share a beat of $0.09 versus consensus, compared to $1.87 billion, $4.20 per share last year. That is strong growth. For the year, net income was $6.29 billion, $14.16 per share, compared to $5.84 billion, $13.14 per diluted share. This is solid, reliable growth.
So comparable sales are key as are growing earnings. Of course, while the growth is solid, the valuation is stretched. We have been hearing this argument for a long time, in fact, for 200 points of gains on Costco. You missed a lot of gains here with that argument. But yes, in terms of valuation here, waiting to buy seems appropriate, as the valuation rating receives an F. To be sure, compared to other consumer discretionary and retail, it is indeed stretched on price to sales and price to earnings. We fully admit that, and while it is a bearish point, it will only come into play if the outlook or performance fell off a map.
But we are not seeing that here. We will get an update again from the company soon. In terms of upcoming releases, Costco will announce September sales results for the five weeks ending Sunday, October 1, on Wednesday, October 4, after the market closes. So we get more there. For inflation, the company most recently in Q3 had estimated that year-over-year inflation would hit them and be in the 3% to 4% range. The company updated that for Q4, inflation will be in the 1% to 2% range, and it’s actually trended downward during the quarter. That is positive. For fiscal 2024, we believe Costco will register sales of $248 billion to $260 billion, with total adjusted comparable sales of 2.5%-3.5%, and assuming comparable margins, register EPS of $15.40-$15.90. We rate Costco Wholesale Corporation shares a long-term buy.
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