Why Costco Stock Was Moving Higher Today

What happened

Shares of Costco Wholesale (NASDAQ:COST) were rising today after the warehouse retailer turned in a strong second-quarter earnings report with better-than-expected profits. As a result, the stock was up 5.4% as of 10:56 a.m. EST.

So what  

Costco continued to demonstrate why it's a best-in-class retailer, posting comparable-store sales growth of 6.7%, excluding fuel, and 7.2% in the U.S. E-commerce sales, a key focus for the company these days, were up 25.5%, and overall revenue increased 7.3% to $35.4 billion, though that was slightly below analyst expectations at $35.67 billion. 

Image source: Costco.

Gross margin climbed from 11% to 11.3%, leading to operating income jumping 18.4% to $1.2 billion. That drove earnings per share up from $1.59 to $2.01, which easily beat estimates at $1.69. 

Costco announced a wage increase earlier in the week, lifting starting hourly wages from a range of $14 to $14.50 to a range of $15 to $15.50 in the U.S. and Canada; wages for supervisors also went up. On the earnings call, CFO Richard Galanti noted a broader online selection of products including new iMacs and MacBooks, and well as expansions in supply and processing plants for meat and chicken, and a new bakery in Canada. 

Now what

Costco does not provide quarterly guidance, but the company updated its adjusted comps figures for the first four weeks of the third quarter, saying they were up 4.6% overall and 5.7% in the U.S. It said February growth was hurt by bad weather in North America and a shift earlier in the Lunar New Year. E-commerce sales increased 21.6% in that period.

While that may indicate slower growth in the third quarter, Costco continues to successfully adapt to the changing retail environment by embracing e-commerce, and is adding new stores, with three expected in the current quarter. Given the strong profit growth, it's not surprising to see the stock climbing today.