Costco stock drops despite Q3 earnings beat

Earnings of warehouse club operator Costco Wholesale (COST) increased in the third quarter and came in slightly above market expectations, supported by strong sales, both in stores and online. However, the company’s shares dropped in the after-hours trading on Thursday following the earnings announcement.

Third-quarter profit advanced to $750 million, or $1.70 per share, from $700 million, or $1.59 per share, in the year-ago quarter, beating analysts’ expectations. Total revenues climbed 12% to $32.36 billion, marking the fourth consecutive double-digit increase. The top-line surpassed estimates as both sales and membership fees registered strong growth.

The members-only retailer said overall comparable store sales moved up 10.2% during the three-month period, with international sales rising 11.8%. Excluding gasoline sales and foreign exchange impacts, same-store sales grew 7%. E-commerce sales rose sharply by 36.8%, continuing the recent trend.

The consistent uptrend in Costco’s e-commerce sales shows that an increasing number of shoppers are using its online platform for making purchases. Costco’s unique membership model and aggressive digital push give it the strength to compete with rivals Walmart (WMT) and Amazon (AMZN).

The superior quality of merchandise offered by Costco and strong market presence make it one of the dominant retail wholesalers. Over the past several years, the Issaquah, Washington-based company has been maintaining a steady growth trajectory, helped by its heavily discounted prices.

Recently, carmaker Volvo joined the Costco Auto Program to offer special deals to customers, taking a cue from the brisk car sales happening in Costco stores.

Among Costco’s peers, Walmart recently reported a 14% growth in its first-quarter adjusted earnings as the company’s e-commerce initiatives lifted revenues by 4% to $123 billion. Earnings of Target (TGT) rose 8% to $1.33 per share in the first quarter supported by a 3% revenue growth.

Costco’s shares traded lower in the latter part of Thursday’s regular session, after making modest gains in the early hours. Following the earnings release, the stock lost further.