Costco Wholesale Corp. (NASDAQ:COST) has been in the spotlight this morning, after it missed earnings estimates for its second fiscal quarter.
Jim Cramer, a famous investor, said that there wasn’t much in the earnings announcement of this company to cause investors to lose their nerve.
Retail giant made $4.02 per share during its recent quarter, compared to analysts’ $4.11 estimates.
The currency was the main cause of this weakness.
Costco’s EPS improved by 2,6%, even with a tax advantage of just under $100m in its previous quarter.
What makes Jim Cramer so bullish about Costco?
Cramer, who spoke to his Investing Club members on Friday, said that despite Costco’s earnings disappointment it is “the world’s best-run retailer”.
This retailer sells a wide range of products that are not as expansive as those you’ll find in Walmart but at an unbeatable price.
This strategy could be particularly effective now that Trump’s tariffs threaten to re-inflate inflation and put pressure on the US economic system.
Costco is a good choice for the budget-conscious consumer who wants to shop in the new macro-environment.
What will COST do to navigate the Trump Tariffs?
Ron Vachris – the Costco chief executive – reassured Costco investors last night on the earnings conference call that the company was well positioned to handle the new tariffs.
He confirmed that the retail giant is willing to replace items with less-exposed alternatives in order to avoid being hit with new tariffs.
The Nasdaq listed firm revealed that members have not changed their behavior as a result of Trump’s tariffs.
In the second quarter of this financial year, traffic to stores increased by 5.7%.
A dividend yield of 0.45% is also tied to Costco’s stock, making it more appealing to buy for long term.
Does it make sense to buy Costco stock today?
Jim Cramer acknowledged that Costco’s shares were not cheap to buy at 55 times earnings forward, but said they are still a good investment because of eight quarters in a row where operating margins have increased, comps better than expected, and an increase in the number of membership renewals.
Retail giant ends Q2 with total of 78.4 millions paid memberships. This is a 6.8% rise compared to the same period last year, but a drop of about 300,000.
Costco has opened just one store during the second quarter, but plans to open a few others in the next weeks.
The former hedge fund manager argued that once it happens, membership numbers will also improve.
Gary Millerchip, the chief financial officer at Costco, said that they are also growing their advertising business. The revenue will be reinvested back into the company to maintain low prices.
The post Deep dive on why Costco’s Q2 was a success for investors, despite a disappointing earnings report may change as new information becomes available.
