Blaine Rollins: "Feel the lift?"

Blaine Rollins: "Feel the lift?"




Costco delivered nearly everything you could ask for. A better-than-expected profit? Costco’s earnings beat analyst forecasts by six cents a share. Consensus-topping revenue? Total sales rose 16% to $42.3 billion, ahead of estimates of $41.6 billion. Ridiculously good sales at stores opened at least 13 months? Same-store sales rose 5.7%, if we exclude volatile gasoline prices and currency fluctuations. In this retail environment, those are surely results worth celebrating.

Or maybe not. Costco’s shares fell 6% last Friday, as investors saw flaws where they once saw perfection. They point to Costco’s gross-profit margins, which slipped to 13.2% from 13.4% a year ago, and lower membership renewal rates—retail renewals dropped to 89.3% from 89.5%. But there’s another reason Costco can’t seem to catch a break: It’s just too expensive.

After Friday’s earnings report, Costco trades at 24.5 times 12-month forward earnings. While that is well off its June peak of 31.2, it’s still 1.5 times other food and staples retailers, and well above the S&P 500’s price/earnings ratio of 19.3. Normally, that wouldn’t be a problem—Costco almost always trades at a premium—but these aren’t normal times. With Amazon at the controls, Whole Foods started cutting prices. That means everybody in the business will be feeling pressure to do the same.

(Barron’s)

Costco is a 4% holding in the Consumer Staples ETF. The companies that sell everything on its shelves are an 80% weighting…

@charliebilello: Consumer Staples ETF: first weekly close below its 200-day moving average since January, relative strength at a 6-yr low. $XLP

XLP Chart

Behavioral Finance Geeks raise a glass tonight…

Congrats to Richard Thaler. Here is our recommended updated scene from ‘The Big Short.’

The Big Short Selena Gomez

As a student of the first film, I thought “Blade Runner 2049” was perfect…

Blade Runner Film

(Financial Times)

Finally, congratulations on raising a better teenager than yourself…

Now will “socially more responsible” translate into “financially more responsible”? If so, should we clip another couple of points off of our long term VIX projection?

Teens Comparison Chart

 

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