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Costco Wholesale Corp. believes it can withstand the assault from online retailers like e-commerce giant Amazon.com Inc. Analysts are equally, if not more, optimistic about Costco’s prospects.
“I have read reports that some of you have written that we and maybe one or two other retailers out there... are Amazon-proof or Internet-proof. We don’t buy that for a minute,” said Richard Galanti, chief financial officer of Costco COST, +3.40% , according to a FactSet transcript of the company’s Thursday earnings call. “We do believe that… we’re going to be impacted less.”
Galanti believes the difference between Costco and the online competition is in its huge warehouses.
“[O]ur value proposition is best served for us when it’s in-store getting members to come in and buying when they can see everything that we have,” he said. “Have we lost a sale of something to an Internet provider out there, whether it’s Amazon or someone else? I’m sure we have. Have we gained more often than that? Absolutely.”
Analysts also have a list of reasons why Costco is well-positioned against Amazon AMZN, +1.00% .
“Costco acknowledged it’s evolving with the changing world as it faces competition from the likes of Amazon,” UBS analysts said in a Friday note. “But Costco knows its value proposition, which is high value at low prices. Unlike online-only players, convenience has never really been a piece of it for Costco. This leads us to believe it can coexist with others.”
Costco reported earnings of $1.77 per share, up from $1.73 per share year-over-year, and beating the FactSet consensus of $1.72. Sales of $36.56 billion for the fourth quarter were up from $35.78 billion for the same period last year, but missed the FactSet consensus of $36.59 billion.
Costco shares are up 3.8% in Friday trading.
See also: Costco earnings get boost from switch to Visa
Costco’s transition to the Visa Inc. V, +0.95% card from the American Express Co. AXP, +1.06% card also gives analysts reason for optimism.
“We launched only 14 weeks ago, but so far, we’re beating our initial expectations in terms of conversion usage and new sign-ups to the card,” said Galanti.
On June 20, Costco stopped accepting the American Express Co. card and began accepting Visa. About 11.4 million American Express cards, representing about 7.5 million accounts, were converted to the Citi Visa, according to Galanti. Nearly 85% of those cards are considered active, meaning they’ve been used for a purchase over the last 60 days.
See also: Unhappy about Costco’s switch to Visa? Here are your options
Also since June 20, there have been 1.1 million new account applications, with more than 730,000 accounts activated. Galanti touted the improved rewards for customers – “we estimate it’s about a 40% to 50% improvement in the reward program,” he said – and said the company is past any “glitches” that it experienced when the new card launched.
“We argue the benefits of its credit card transition are just beginning and should build over time,” wrote UBS analysts. UBS rates Costco buy with a price target of $180.
See also: Costco says August sales hurt after it opened too many warehouses overseas
Cowen & Company analysts believe Costco has a “strong competitive advantage in fresh food,” which is about 14% of the company’s revenue.
“Moreover, Costco’s other ancillary services (about 16% of revenue) such as optical, pharmacy, travel, and gas stations should continue to support store traffic as these businesses also remain difficult to translate online,” analysts wrote in a Friday note.
Cowen rates Costco shares outperform with a target price of $170.
See also: Does Wal-Mart have a bugger against Amazon in food?
Analysts at BMO Capital Markets think the announced 10% price increase for international members in countries including the U.K., Mexico, Japan and Taiwan, will equal $50 million in additional fees.
“While a timeline was not provided for a fee raise in the U.S. and Canada, we continue to believe that an early- to mid-2017 fee hike remains possible, particularly given stable 90% renewal rates in the U.S. and Canada,” BMO wrote in a Friday note.
BMO raised its fiscal 2017 EPS estimate by 5 cents to $5.90 and its fiscal 2018 EPS estimate by 7 cents to $6.47 “primarily reflecting the international fee hike,” the bank said.
“Costco’s low gross margin philosophy, combined with product nimbleness (given its limited to less than 4,000 SKUs) and growing convenience, supports an outlook for the company to remain highly relevant in a fast-changing consumer environment,” analysts said.
BMO rates Costco shares outperform with a $180 price target.
Costco shares are down 5.2% for the year to date, but up 5.9% for the past year. The S&P 500 index is up 13% for the past 12 months.
