Costco Wholesale (COST) Q2 Results Raise GPM Concerns; Deutsche Bank Comments
"While we suspected the combination of lower overall gas profitability, unfavorable FX, and a challenging start to February (quarter ended on 2/16) would make reaching consensus difficult, the wide 2Q EPS miss by COST ($1.05A vs. DB at $1.15 and Street at $1.17) highlights that much more was at play. To this end, the CFO comments in the press release (a rarity) that GPM was hurt during the period by lower merchandise margins in its fresh foods business and by unfavorable mix as sales of certain discretionary categories were softer than expected during the holiday period," said Trussell.
"With the conference call not until 11AM EST, shares will likely be down meaningfully this morning as investor concern will be focused on whether 2Q was unique due to winter storms and the impact of FX or if in fact GPM weakness continues as price investment is needed to maintain market share in this tough environment. All was not bad, however, as we note that the headline February SSS print of 2.0% was ahead of our 1% forecast and we believe core SSS were ~4.5%," he added.
Deutsche Bank has a Buy rating on Costco Wholesale with a price target of $130.00.
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Shares of Costco Wholesale closed at $116.47 yesterday, with a 52 week range of $98.95-$126.12.