Even though Costco reported stellar earnings that beat both the top and bottom line, shares found it difficult to hold a bid in the after market trading session on Thursday October 5, 2017.

Even though shares initially popped on the earnings report- actually hitting a high of $170.50- after the details were read and absorbed by traders and investors it was clear that Costco had one factor that would weigh heavy on the future share price.

The stock wound up closing at $162.20 which was down -$4.88 or down 2.92% in the aftermarket session. The shares have traded in a 52-week range from a low of $142.11 to a high of $183.18. Costco pays a hefty dividend of 1.21% or $2 per share per year.

The factor outshining the stellar earnings was the gross margin of profits on a year-over-year basis. The fiscal quarter saw a decrease of about 15 basis points in their gross margins.

It seems Costco has been spending heavily to drive new sales and to keep existing members through their loyalty sales program. Clearly the drive to increase memberships had a positive effect because membership fees accounted for 72% of the actual operating income that Costco earned in the quarter. The quarter also saw an increase in these fees by $5 for their Gold star and Business members and by $10 for their executive membership members.

COST Numbers

When Costco reported earnings after the bell on Thursday, their fourth-quarter net income came in at $919 million dollars which compares with $779 million a year ago. Earnings per share came in at $2.08 versus $1.77 in the year prior. Revenues rose to $42.3 billion dollars from $36.5 billion dollars a year ago. These numbers are huge and represent the scope of Costco’s influence on the American Consumer.

The Chart

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It is  clear to see how shares initially rose after the earnings were reported on the right side of the chart in the shaded region, and the subsequent sell-off once the numbers and details were digested.

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Clearly, shares of Costco have been underperforming the overall market indices. It is easy to see that there is no clear trend going back the last 5 to 6 months on the daily chart timeframe.

Analyst Comments

In a pre-earnings client note, BMO Capital Markets analysts had this to say:

“We believe near-term sentiment and fear of the long-term impact of Amazon on Costco’s business could continue to create an overhang on COST shares and limit valuation upside,”.