Price cuts and freight costs pressure Costco’s margins, sending its shares lower

Earnings


Costco also said effective June 11, starting wages for its U.S. employees will be raised by $1 to $14 and $14.50 an hour.

This is expected to result in higher pretax cost of $110 million to $120 million annually, with its fourth quarter taking a $25 million hit.

“The concern is probably around the gross margin and wage increases,” Edward Jones analyst Brian Yarbrough said, pointing to the stock’s 2 percent fall in extended trading.

However, Costco’s moves to invest heavily in its online and delivery services helped drive a 14 percent growth in revenue from membership fees and a 35.5 percent rise in e-commerce sales in the third quarter.

Sales at established stores, excluding fluctuations in gas prices and currencies, rose 7 percent in the reported quarter, beating analysts’ estimate of a 5.4 percent rise, according to Thomson Reuters I/B/E/S.

“Costco continues as the retail poster child for consistency, with virtually every metric reflecting strength,” Moody’s retail analyst Charlie O’Shea said.

Net income attributable to Costco rose to $750 million, or $1.70 per share, in the quarter ended May 13 from $700 million, or $1.59 per share, a year earlier.

Excluding items, the company earned $1.70 per share, a penny above the average analyst estimate. Total revenue rose 12.1 percent to $32.36 billion, also beating estimates.



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