Costco Stock Declines As Company Flags Inflationary Pressures

2 min read | May 28, 2021 08:36 PM PDT | By Kiran Murali

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Costco Stock Declines As Company Flags Inflationary Pressures — Image source: Lizardflms, Shutterstock

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Summary

Costco is facing inflationary pressures, including higher labor, freight costs, and higher transportation demand.

Fiscal Q3 comparable sales climbed 20.6 percent, e-commerce sales up 41.2 percent.

Costco Wholesale Corporation (NASDAQ:COST) dropped over 2 percent in Friday’s trading after the company flagged inflationary pressures while reporting its fiscal third-quarter results.

The Washington-based warehouse club operator posted a 21.7 percent year-over-year growth in its net sales during the fiscal third quarter ended May 9.

“Inflationary factors abound”

Costco is facing a variety of inflationary pressures, including higher labor, freight costs and higher transportation demand, as well as container shortage and port delays, CFO Richard Galanti said in the company’s third quarter-earnings call.

Galanti also noted that prices have increased for goods, such as pulp, plastic and resin, and meat. In shipping items across the ocean, he said suppliers are paying double for containers and shipping.

Strong Q3 Results

Costco reported a net income of US$1.22 billion, US$2.75 per share for the third quarter. It compares with the net income of US$838 million or US$1.89 per share in the year-ago quarter.

Costco operates 809 warehouses globally, including 559 in the U.S. and 105 in Canada, and e-commerce sites.

Net sales during the three months surged to US$44.38 billion from US$36.45 billion in the third quarter of the previous fiscal year. Total revenue, which includes membership fees, came in at US$45.28 billion, up from US$37.27 billion.

Source: Pixabay

Costco’s total comparable sales in the third quarter climbed 20.6 percent year over year. E-commerce sales recorded a 41.2 percent growth.

The comparable sales in the U.S. division increased 18.2 percent, while the Canadian unit saw a 32.3 percent growth. Other international segments reported 22.9 percent growth.

The company opened six new warehouses in the third quarter. In the fourth quarter, Costco will open seven new warehouses, bringing the total to 21 new warehouses in the fiscal year.

In April, Costco announced a quarterly cash dividend of 79 cents per share, up from the previous 70 cents per share.

Stock Performance

Costco’s shares trade on NYSE, and it has a market capitalization of US$167.40 billion. The stock soared 25 percent in the last one-year period and is up 0.2 percent year to date. The share has a 52-week trading range of US$293.84 to US$393.15.

On May 28, the stock ended trading at US$378.27, down 2.38 percent.

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