Retail, Consumer Staples ETFs Down After Costco Miss

Includes: RTH, XLP
by: Tom Lydon

By John Spence

Retail exchange traded funds were in the red Wednesday along with Costco (NasdaqGS: COST) after the warehouse club operator reported quarterly net income that fell short of analyst estimates after a charge.

Costco shares “have had a good run of late and are enjoying a healthy multiple, so we could see a modest pullback and we would be buyers,” Jefferies analysts said.

Other Wall Street analysts expressed concern over profit margins that could be pressured by rising inflation.

“Not to throw cold water on the latest from Costco by any means as the performance overall was solid, but the fact is the market yearned for more,” Wall Street Strategies said in a report.

Peter Wahlstrom at Morningstar said Costco shares are trading below his fair value estimate so he is waiting for a further pullback for a more attractive entry point.

“The theme of the quarter is that the company once again strategically sacrificed some margin to increase membership revenue 10%,” the analyst wrote in a note. “Costco continues on its long-term strategic path of capturing incremental consumer traffic and then leveraging that to drive market share gains across all categories in the retail landscape.”

Retail HOLDRS (AMEX: RTH) and Consumer Staples Select Sector SPDR Fund (NYSEArca: XLP), which both hold Costco, were fractionally lower Wednesday.


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