COST - Embedded Expectations Analysis - 2019 01 25
Costco Wholesale Corporation (COST:USA) currently trades above corporate averages relative to UAFRS-based (Uniform) Earnings, with a 26.6x Uniform P/E, implying bullish expectations for the firm. However, management has concerns about tariff-driven cost pressures, e-commerce margins, rewards card costs, and sales growthSpecifically, management may be concerned about tariff-driven cost pressures, as well as tax and FX rates. Additionally, they may be overstating their satisfaction with online sales growth and their ability to improve e-commerce margins. Also, management may lack confidence in their ability to get customers to upgrade memberships, and may have concerns about renewal rates in the U.S. and Canada. Moreover, they may be concerned about their ability to drive sales growth with rewards cards, and about additional breakage caused by earned rewards. Finally, management may lack confidence in their ability to purchase new high-quality merchandise at affordable prices
Costco Wholesale and its subsidiaries are principally engaged in the operation of membership warehouses based on the concept of providing its members low prices on a selection of nationally branded and private-label products. The company's merchandise are: food and sundries, which include dry foods, packaged foods, and groceries, snack foods, candy, alcoholic and nonalcoholic beverages, and cleaning supplies; hardlines, which include appliances, electronics, health and beauty aids, hardware, and garden and patio; fresh food, which include meat, produce, deli, and bakery; softlines, which include apparel and small appliances; and ancillary, which include gas stations and pharmacy businesses.
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