On Thursday night, Costco Wholesale Corporation (NASDAQ: COST) announced the financial results for the company’s fiscal fourth quarter. Costco reported GAAP EPS of $4.20 for the 16-week period that ended on August 28th on revenue of $72.09B. The bottom line print came in at $1.868 billion, or 3 cents higher than expected and 11.8% higher than the year-ago comparable. The top line result outperformed Wall Street and increased by 15% yearly.

The $1.327B rise in membership fees, which was somewhat more than expected, was 7.5%. This $29.8M amount saw a negative impact due to changes in currency exchange rates. With 118.9 million cardholders and 29.1 million paid executive members after the quarter, the company saw increases of 2% and 4.3%, respectively. In the US/Canada area, renewal rates reached an all-time high of 92.6%, while 90.4% was elsewhere.

Costco Wholesale Corporation Comparable Sales

Comparable sales were as follows:

• US: 15.8% annually; corrected 9.6% annually.
• Canada: +13.4% y/y, 13.7% y/y when adjusted
• International: +2.9% y/y, but corrected to +11.3% y/y.
• E-commerce: 7.1% y/y, but adjusted at 8.4% y/y.
• Adjusted +8.4% y/y for the entire company, +7.1% y/y.

– Changes were made to account for fluctuating gasoline costs and currency exchange rates.

Margin Consolidation

Not in the press release, this. To learn what CFO Richard Galanti had to say about margin, you had to either listen to the post-earnings conference call or read the transcript.

The gross margin was 10.18%, 74 basis points lower than the comparable 10.92% figure from the previous year. Gasoline exclusion would have resulted in a 22 basis point reduction. Excluding fuel, the core merchandise margin fell by 67 or 23 basis points. Since Costco’s gasoline division has a low margin and gasoline sales have increased significantly, the margin has been negatively impacted overall.

Account Statement

Costco Wholesale Corporation (NASDAQ: COST) had $11.049 billion in net cash at the end of the quarter, down approximately $1 billion from the prior year, and $17.907 billion in inventory, up more than $3 billion. This increased current assets by nearly $3 billion to $32.696 billion. With $31.998B in current liabilities, the company has a current ratio of 1.02. The balance narrowly meets the requirements. Depending on how successfully the company handles inventory value in an unpredictable environment, a quick ratio of 0.46 may or may not be troublesome.

Are assets total $64.166 billion. The company asserts that “goodwill” and other intangible assets have no worth. The name alone is quite valuable. $43.519 billion is the total liabilities less equity, including $6.484 billion in long-term debt. This balance sheet is in sound condition aside from the current circumstances. They are keeping more current assets in inventory than cash is risky. It is encouraging that Costco has roughly twice as much money as debt.

Market Street

Since these earnings were announced on Thursday, several sell-side analysts have expressed their opinions on COST. Only three, though, stand out to me as being highly regarded by TipRanks. All three are given a rating of five stars.

Trust Financial’s Scot Ciccarelli reduced his target price from $571 to $559 while keeping his “buy” recommendation. Oppenheimer analyst Rupesh Parikh decreased his target price from $600 to $550 while keeping his “outperform” rating. DA Davidson’s Michael Baker maintained his “neutral” rating while raising his target price from $440 to $445.

Conclusion

Costco Wholesale Corporation (NASDAQ: COST) is operating effectively and is well renowned for this. The stock trades at 37 times forward-looking earnings, which is highly costly in this market, even with this morning’s reduction. The price tag is not made more appealing by the dividend yield of 0.74%.

Costco has two possible upward catalysts, which readers of Market Recon are aware I am seeking these days. However, neither seems to be coming soon—the company’s history of paying out significant special dividends to shareholders. Recent reports have not mentioned such an incidence.

The yearly membership price would be increased as an alternative. Costco Wholesale Corporation (NASDAQ: COST) may succeed in this situation because it offers what homes and companies need and sells things in volume at a perceived discount. If necessary, the company might take this one out of its hat, but that will happen later. Just last week, CEO Craig Jelinek put that notion to bed for the time being.

The cup and handle pattern I created for you earlier this summer failed at the $564 mark, as readers can see. It was followed by a downward trend that seems to be increasing. Very little relative strength exists. The daily MACD is not doing well. The stock has now breached the established volume shelf above the $510 mark. When the stock does rebound, it will offer tough algorithmic resistance at that level.

The 200-day SMA is flatlining roughly $45 above the most recent sell, but the 50-day SMA has started to move downward. No portfolio manager has ever commented, “That looks technically appealing.” The stock is at risk of breaking my Pitchfork model’s bottom limit. Until we see whether that level holds, COST cannot be purchased.

Although it’s unnecessary, if this Pitchfork fails, the lows of May this previous year wouldn’t be improbable. There may be people selling October 21st for $420 puts for $3+. The $3 premium’s quick profit might be pretty expensive after a month. Either I’m not that irresponsible, or I’m not that courageous.

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