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Costco Disappoints, Shares Weaken

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Costco Disappoints, Shares Weaken

Shares of Costco (NASDAQ:COST) were sent tumbling to the downside on Wednesday morning following the company’s first quarter results before the market open. The retail earnings season has been largely mixed up until this point with names on both the high and low end sending Wall Street surprises. Costco reported earnings of 96 cents a share for its fiscal first quarter, which ended in November. These results were higher from 95 cents the prior year but below analyst consensus views for $1.02 a share. On the top line, Costco generated revenue growth of 5% to $25.02 billion, shy of estimates.

On a comparable basis the company reported same-store sales rose 3% including the impact of fuel sales and foreign exchange, and 5% excluding the impact of gas prices and foreign exchange.

For Costco, it was the second straight quarter they have to posted a single-digit or less EPS increase, ending a long run of double-digit gains. Shares of the company have performed well so far this year. Year to date, shares of the company are higher by more than 20 percent. On this trading day however, shares of the company traded to the downside by half a percent alongside broad market weakness.

In the coming days we will likely see analyst commentary on the quarter. Hopefully, in the second quarter the company can reach double digit gains once again. At 25 times this year’s earnings the company maintains a lofty valuation. Fears of growth slowing may lead to multiple contraction and weakness during any market turbulence. Until then, a strong equity market may be able to support above market multiple valuations. Costco’s competitors Walmart (NYSE:WMT) and Target (NYSE:TGT) also reported less than stellar quarters in recent weeks. Perhaps these disappointments are signs of a still fragile economy.

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