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Sep 24, 2020

Costco falls after posting US$281M in pandemic expenses

Chris Blumas discusses Costco, Target and Walmart

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Costco Wholesale Corp. fell in late trading after the company gave details about the cost of protecting shoppers, part of the double-edged COVID-19 pandemic that has brought big-box retailers added expenses to go with booming sales.

The company reported incremental expenses of US$281 million before taxes in the period ended Aug. 30 as a result of higher wages and sanitation costs. Net income of US$3.13 a share surpassed the estimate of US$2.85 from analysts.

Key Insights

  • The company saw a spike in its cash and cash equivalents to US$12.3 billion, up from US$8.4 billion from last year, and investors may be expecting a payout, said Bloomberg Intelligence analyst Jennifer Bartashus. “At first they probably held onto cash to ensure enough liquidity for operations” during the start of the pandemic. “But they had big sales bumps and have a lot on hand now,” she added, noting the company has paid special dividends in the past.
  • Sales from membership fees rose slightly to US$1.11 billion in the quarter from a year earlier. That was just lower than anticipated, according to estimates compiled by Bloomberg. Since Costco releases sales on a monthly basis, this measure is closely watched by investors in the company’s earnings reports.
  • Big-box retailers such as Costco, Walmart Inc. and Target Corp. have seen sales jump since COVID-19 lockdowns started in March. Consumers have been stocking up not only on pantry goods like beans and rice, but also lounge wear and computers for remote work and education. Investors will be listening for more details during the upcoming call with executives.

Market Reaction

  • The shares fell as much as 3.7 per cent in late trading. So far this year, they have increased 18 per cent, compared with a 0.5 per cent gain for the S&P 500 Index.