Morning Note: Market news and an update from retailer Costco.
Market News
Equity markets remain firm on dovish signals from central banks, with Fed Chair Powell saying the bank is ‘not far’ from confidence needed to cut rates. Today investors turn their focus to American jobs data. The report may show hiring in February was concentrated in just a few sectors and masked a broader cooling in the labour market, according to Bloomberg Economics. Employers probably added 185,000 to headcount, a slowdown from the blockbuster 353,000 in the prior month, which may be revised down.
The 10-year Treasury continued to drift lower, to 4.07%, while Gold remained firm at $2,163 an ounce. Sterling trades at $1.2808 and €1.1705. Brent Crude continued its recent rally and trades at $82.50 a barrel.
In the US, both the major indices moved higher – S&P 500 (+1.0%), Nasdaq (+1.5%) – as did the main markets this morning in Asia: Nikkei 225 (+0.2%); Hang Seng (+1.2%); Shanghai Composite (+0.6%). The FTSE 100 is currently trading 0.2% lower at 7,683.
Mondi has reached an agreement in principle for an all-share offer to buy smaller packaging rival DS Smith at 373p a share, a 33% premium to DS Smith’s closing share price of 281p on 7 February 2024 (being the day prior to the commencement of the offer period). DS Smith is up 7% this morning.
Source: Bloomberg
Company News
Last night, Costco Wholesale Corporation released results for the 12 weeks ended 18 February, the second quarter of its 2024 fiscal year. Performance was slightly below market expectations, and in response the shares fell by 4% in after-hours trading, leaving up 11% so far this year and on a market cap of c. $350bn.
Costco is the world’s third largest retailer. The company operates an international chain of membership warehouses that carry merchandise at substantially lower prices than are typically found at conventional wholesale or retail sources. In addition to grocery products, the company sells electronics, apparel, toys, health and beauty products, furniture, office equipment, and petrol.
The warehouses are designed to help small- to medium-sized businesses reduce costs in purchasing for resale and for everyday business use. Individuals also may purchase for their personal needs. Additionally, Costco Wholesale Industries operates manufacturing businesses, including special food packaging, optical laboratories, meat processing, and jewellery distribution.
The company currently operates 875 warehouses, including 751 in North America and the remainder in Europe and Asia. Costco also operates e-commerce sites in the US and across seven overseas markets. In the last financial year, the group generated annual sales of around $238bn from 130m cardholders, with renewal rates in the low 90s.
During the latest quarter, net sales increased by 5.7% to $57.3bn, including a 1.5% calendar impact. The company also provided trading data for the month of February, highlighting net sales up 6.9%.
Adjusted comparable sales, which exclude fuel and currency, grew by 5.8% in the quarter. This was slower than expected as consumers feeling the pinch of inflation cut back spending, particularly for big-ticket non-essential purchases such as home furnishings, sporting goods, and garden supplies.
By geography, the US grew by 4.8%, Canada was up 9.0%, and the international business rose 8.2%. E-commerce sales grew by 18.2%. The group also generates revenue from membership fees, which grew by 8% to $1,111m in the quarter, to give total revenue up 5.7% to $58.4bn, slightly below the market forecast of $59.1bn.
Adjusted EPS grew by 19% to $3.92, ahead of the market forecast of $3.62, albeit it helped in part by a tax benefit. The group has a strong balance sheet with net cash of $0.9bn (including lease liabilities) at the quarter end. Since dividends payments were initiated in 2004, the payout has grown by in excess of 10% per annum. From time to time, the group also pays special dividends and repurchases its shares.