Costco Wholesale Corporation (COST- Analyst Report) has released its fourth-quarter fiscal 2014 results today. Quarterly earnings of $1.58 per share surpassed the Zacks Consensus Estimate of $1.52 and rose 12.9% from $1.40 earned in the prior-year period, aided by impressive comparable-store sales performance.

Let’s Unveil Further

The warehouse retailer’s total revenue, which includes net sales and membership fee, climbed 9.3% to $35,523 million from the prior-year quarter, and came ahead of the Zacks Consensus Estimate of $35,360 million. The top-line growth rate accelerated from 7.1% in third-quarter of fiscal 2014. Quarterly net sales rose 9.4% year over year to $34,755 million, whereas membership fee increased 7.3% to $768 million.

Costco’s comparable-store sales, or comps, for the quarter increased 6%; buoyed by an equivalent percentage increase across both U.S. and international locations. In the year-ago quarter, the company delivered comparable-store sales growth of 5%.

Excluding the effect of lower gasoline prices and foreign currencies, the company witnessed comparable-store sales growth of 7%, with U.S. and international comps increasing 6% and 8%, respectively.

The company also came out with its comparable-store sales for the five weeks ended Oct 5. Comps increased 4% for the month of September, reflecting an increase of 5% in the U.S. and 2% at international locations.

Excluding the effect of deflation in gasoline prices and impact of foreign currency fluctuations, Costco’s comparable-store sales for September rose 6%, reflecting a similar percentage increase across both U.S. and international locations.

Costco’s operating income rose 14.4% year over year to $1,091 million, whereas, operating margin (as a percentage of total revenue) expanded 20 basis points to 3.1%.

Financial Aspects

Costco ended the quarter with cash and cash equivalents of $5,738 million and long-term debt of $5,093 million. The company’s shareholders’ equity was $12,303 million, excluding non-controlling interests of $212 million.

Let’s Conclude

Costco continues to be a dominant retail wholesaler based on the breadth and quality of the merchandise it offers. Its strategy to sell products at highly discounted prices has helped in sustaining growth amid beleaguered economic conditions, as cash-strapped customers continue to reckon Costco as a viable option for low-cost necessities. Having delivered consistent comparable-store sales growth, the company is well positioned in the warehouse club industry. Also, the company’s diversification strategy is a natural hedge against risks that may arise in specific markets.

However, Costco faces stiff competition from Target Corporation (TGT - Analyst Report) and Sam’s Club, a division of Wal-Mart Stores Inc. (WMT - Analyst Report), which follows a similar business model that pushes through high volumes of merchandise at low prices in membership-only warehouse clubs. Thus, aggressive pricing to gain market share and drive traffic amid stiff competition may depress sales and margins.

Costco currently operates 664 warehouses, comprising 469 warehouses in the United States and Puerto Rico, 88 in Canada, 33 in Mexico, 26 in the United Kingdom, 20 in Japan, 11 in Korea, 10 in Taiwan, 6 in Australia and 1 in Spain. Further, the company plans to open 8 more warehouses before the year end.

Currently, Costco has a Zacks Rank #2 (Buy). Another stock worth considering in the retail sector is Burlington Stores, Inc. (BURL - Snapshot Report) which carries a Zacks Rank #1 (Buy).