3 Takeaways To Carry Forward From Costco's Fiscal 2020 Q2 Earnings

Summary

• Costco reported another strong quarter in fiscal Q2 2020.
• Online sales are seeing solid double digit percentage comparable sales increases.
• Costco continues to find success in new markets like China.
• The company maintains a strong balance sheet, which should help the company ride out any tough economic times.
• Costco is a solid stock for any portfolio.

Costco (NASDAQ:COST) reported another strong quarter after the close last Thursday. The results came in with GAAP EPS of $2.10, beating by $0.04 and revenue of $39.07B, beating by a whopping $810M. The stock fell 1.4% in Friday's trading session along with the market despite the strong results.

Here are three key take-aways to carry forward from the company's earnings report and conference call.

Source: Chinadaily

Takeaway #1 - Online Sales Are A Strong Point

While comparable sales for Costco continue to be strong across the company, online sales had yet another unbelievable quarter. The company revamped its mobile app, which likely contributed to the 28% increase in comparable online sales. The timing of Thanksgiving also played a role to the tune of 11 percentage points in comparable online sales. New e-commerce site launches in Japan and Australia during the quarter also helped here. Going forward, Costco has yet to launch e-commerce sites in Spain, France, Iceland and China, although these countries currently only have a few Costco locations.

Source: Costco 8-K

The company continues to invest in e-commerce and online sales capabilities. CEO Galanti hinted on the conference call that they're investing and bringing more to the e-commerce space soon, but can't talk about all of it yet. Online grocery grew even faster than overall e-commerce and remains a big opportunity for retailers and supermarkets like Costco that I think will continue to contribute to significant comparable sales increases going forward.

Takeaway #2 - New Markets Continue To Be Successful

Costco had no new openings in fiscal Q2 but has plans for some later this year. The company has new locations in Perth, Australia and Ridgeland, Mississippi, USA on track to open this year. The Australia location will be just the 12th store in that country, while the Ridgeland store will be the first in Mississippi. Mississippi will be the 45th state in the US with at-least one Costco location, meaning there are 5 more states to go. Australia, Europe, and China all represent huge markets for Costco to continue expanding. The company is far from done expanding to more locations.

Furthermore, the Shanghai store is one of the company's top 2 stores in the world and has around 5 times more members than the average Costco location. This is the first and only location in China. I think with this success there are surely many more to come, many of which have greater potential, due to a high population density, to produce more members, which ultimately flows to the bottom line for shareholders.

Takeaway #3 - Strong Balance Sheet

Finally, Costco keeps a relatively strong balance sheet, which can act as an anchor in difficult or volatile times like the present. Cash declined slightly in the previous quarter as the company stocks up on inventory for the summer season. Long term debt continues a downward trend. Costco now sits with over $8 billion in cash and short term investments, compared to just $5 billion of long term and current debt.

Source: TIKR.com

Costco is not only well-positioned to handle downturns, but has enough cash to continue expanding for the foreseeable future.

Conclusion

Costco continues to be one of my favorite stocks. The company is capitalizing on opportunities with new locations and online sales while keeping a solid cash position to ride out any potential tough times. The COVID-19 virus remains a concern, but management was confident the company could get through any supply chain disruptions on the conference call through a combination of sourcing new products and managing inventory levels well. Costco is a solid stock in uncertain economic times, which is fair to say, applies today.

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Analyst’s Disclosure: I am/we are long COST. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.