COST - Embedded Expectations Analysis - 2020 06 22
Costco Wholesale Corporation (COST:USA) currently trades near historical highs relative to UAFRS-based (Uniform) earnings, with a 32.6x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may be concerned about store sales, gross margin declines, and food court performanceSpecifically, management may have concerns about eliminating their food court seating, limiting their food court menu, and estimated loss of sales due to closed or restricted items. In addition, they may lack confidence in their ability to maintain their comparable store sales growth, renewal rate improvements, and gasoline gross margin strength. Furthermore, they may be concerned about FX headwinds, core merchandise margin declines, and costs attributed to coronavirus. Meanwhile, they may lack confidence in their ability to sustain hand sanitizer, office item, seafood, and produce performance. Additionally, they may have concerns about their core operations SG&A expenses, interest and principal payments from their outstanding debt, and their same-day grocery program
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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