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On 10/5/17, Costco Wholesale reported Q4, FY 2017, and September results. To make it easier to review the trifecta of news, the results have been broken down into separate sections.

Quick Summary:

In after hours trading, the market reacted negatively to Costco’s announcements. Shares were down by ~3% in volatile trading mainly around grocery competition and slightly eroded margins (15 basis point or 0.15%). In all, Costco numbers were good with an earnings beat and higher membership fees boosting the bottom line. On the call, CFO Richard Galanti mentioned Costco's response to increased grocery competition with the launch of a two day Costco Grocery delivery option for non-perishable grocery items. Fresh items (and non-perishables) will be delivered same day by an expanded Instacart roll out that we had seen in some test markets earlier in the year. However, the company noted the goal is still to get customers in store. How do you think Costco fared over Q4 and FY 2016? Feel free to join the conversation and post your comments.

Note - I will follow up with a transcript or the call once available. Also, still digging for membership numbers to measure any impact from the fee increase.

September Sales:

Comparable sales in the United States were up 9%, while internationally Costco continues to grow comparable sales. Canada increased by 9.4%, while other international sales were up by 8.2%. Overall, total company comparable sales increased by 8.9%. Also note, E-commerce shows significant growth of 30%. These figures suggest very healthy customer traffic and spending, both online and in store.

Comparable Sales (Sep ‘17)

U.S. 9%
Canada 9.4%
Other International 8.2%
Total Company 8.9%
E-commerce 30%

The comparable sales paint a much different picture of sales growth when gasoline price deflation and foreign exchange impacts are excluded. This view of the sales gives us a more clear view of comparable sales growth (or decline) if all other factors remained the same.

Comparable Sales (ex Gasoline Price & Foreign Exchange - Sep ‘17)

U.S. 7.1%
Canada 1.4%
Other International 7.2%
Total Company 6.2%

Q4 2017 Operating Results:

As of the net sales for the quarter of $41.36 billion was an increase of 15.8% compared to the $35.73 billion last year. Net income for Q4 was $919 million, or $2.08 per diluted share, compared to $779 million, or $1.77 per diluted share, last year. The Q4 comparable sales were up across the board, with E-commerce increase of 21%.

Comparable Sales (Q4)

U.S. 6.5%
Canada 4.9%
Other International 5.6%
Total Company 6.1%
E-commerce 21%

Comparable Sales (ex Gasoline Price & Foreign Exchange - Q4)

U.S. 5.8%
Canada 4.8%
Other International 6.0%
Total Company 5.7%

FY 2017 Operating Results:

FY 2017 net sales of $126.17 billion, an increase of 8.7% over the $116.07 billion last year. Net income for FY 2017 $2.68 billion, or $6.08 per diluted share, compared to $2.35 billion, or $5.33 per diluted share, last year. The FY 2017 net income was positively impacted by a $82 million ($0.19 per diluted share) tax benefit in connection with a third-quarter special cash dividend, as well as a $51 million ($0.07 per diluted share) for non-recurring legal and other matters. The FY 2017 comparable sales were up across the board, with E-commerce increase of 13%.

Comparable Sales (FY 2017)

U.S. 4.4%
Canada 4.7%
Other International 2.1%
Total Company 4.1%
E-commerce 13%

Comparable Sales (ex Gasoline Price & Foreign Exchange - FY 2017)

U.S. 3.7%
Canada 3.8%
Other International 4.5%
Total Company 3.8%

Approximately 70% of Costco’s 741 warehouses are located within the United States. This leaves roughly a third of Costco’s warehouses exposed to potential positive or negative impacts from a strong US Dollar as well as fluctuations in food and gasoline prices. Warehouse breakdown: 514 in the United States and Puerto Rico, 97 in Canada, 37 in Mexico, 28 in the United Kingdom, 26 in Japan, 13 in Korea, 13 in Taiwan, 9 in Australia, 2 in Spain, 1 in France, and 1 in Iceland. Costco e-commerce presence spans the U.S., Canada, the United Kingdom, Mexico, Korea, and Taiwan.

Link to Press Release:

http://phx.corporate-ir.net/phoenix.zhtml?c=83830&p=irol...


Article on Grocery Delivery Recap:

https://www.bizjournals.com/seattle/news/2017/10/05/costco-g...


CMFHeavyMetal

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Ticker Guide for Buffalo Wild Wings (BWLD), Costco Wholesale (COST), Magellan Midstream Partners (MMP), & Synchronoss Technologies (SNCR)
Disclosure: May own shares of some, or all of the companies mentioned in this post. (http://tinyurl.com/HM-Disclosure)
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