Retail stock under pressure: Costco Wholesale Corporation (NASDAQ: COST)

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Costco Wholesale Corporation (NASDAQ: COST) stock lost over 1.12% on 29th May, 2020 (as of 10:04 am GMT-4; Source: Google finance) after the company posted lower than expected results for the third quarter of FY 20. The company has reported the net income for the third quarter was $838 million, which was negatively affected due to $283 million pretax, from incremental wage and sanitation costs related to COVID-19. This is compared to last year’s reported third quarter net income of $906 million, which included the benefit of a non-recurring tax item of $73 million. Further, in the third quarter of fiscal 2020 total capex was approximately $626 million and the estimated CapEx for all of fiscal 2020 is currently in the $2.7 billion to $2.9 billion range.

COST in the third quarter of FY 20 has reported the adjusted earnings per share of $1.89, missing the analysts’ estimates for the adjusted earnings per share of $2.04. The company had reported the adjusted revenue growth of 7.3 percent to $37.27 billion in the third quarter of FY 20, missing the analysts’ estimates for revenue of $37.52 billion. On a same-store comparable sales basis for the third quarter, for the 12 weeks on a reported basis, the U.S. was at 5.9%. In terms of traffic, the company’s shopping frequency had declined in the third quarter worldwide by 4.1% and in the U.S. by 2.0%. The average transaction or ticket was up 9.3% during the third quarter and the 9.3% does include the negative impacts from gas deflation and FX. The company has reported higher gross margin year-over-year by 54 basis points on a reported basis, coming in at 11.53%, up from 10.99%.

Additionally, the company has declared a quarterly cash dividend on Costco common stock and approved a quarterly increase from 65 to 70 cents per share, or $2.80 on an annualized basis. The dividend was payable May 15, 2020, to shareholders of record at the close of business on May 1, 2020.

Meanwhile, the company had priced its offering of $4 billion total principal amount of senior unsecured notes. The company plans to use the net proceeds from the offering to repay at or prior to maturity all of our 2.15% Senior Notes due May 2021, in an aggregate principal amount of $1 billion, as well as all of the 2.25% Senior Notes due February, 2022, in an aggregate principal amount of $500 million. The company will be using remaining proceeds for general corporate purposes.

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