After missing the Zacks Consensus Estimate by 6.8% in the first quarter of fiscal 2016, Costco Wholesale Corporation (COST – Analyst Report) again succumbed to a negative earnings surprise of 3.1% in the second quarter. The company reported earnings of $1.24 per share that missed the Zacks Consensus Estimate of $1.28 and also declined 8.1% from $1.35 posted in the prior-year quarter due to higher operating expenses. Lower traffic count and foreign currency headwinds impacted the quarterly results as well.

Delving Deeper

The warehouse retailer’s total revenue, which includes net sales and membership fee, rose 2.6% to $28,170 million in the reported quarter. Quarterly net sales went up 2.6% year over year to $27,567 million, whereas membership fee increased 3.6% to $603 million. However, total revenue fell short of the Zacks Consensus Estimate of $28,584 million, thus marking the fifth straight quarter of revenue miss.

Costco’s comparable-store sales (comps) for the second quarter inched up 1%, following a decline of 1% in the preceding quarter, reflecting a 3% increase at U.S. locations, partially offset by a 7% fall in locations at Canada and a 3% drop at Other International outlets.

Excluding the effect of lower gasoline prices and currency headwinds, the company witnessed comps growth of 5% during the quarter, with U.S., Canada and Other International comps registering an increase of 4%, 10% and 6%, respectively.

Costco’s operating income in the quarter under review dropped 2.4% year over year to $856 million, whereas operating margin (as a percentage of total revenue) contracted 20 basis points to 3%.

February Sales Results

Costco reported flat comps for February, following flat comps for January, an increase of 1% in December, flat comps in November and a 1% decline in October. Comps for February reflect an increase of 2% at the company’s U.S. locations, offset by a 2% fall at its Canadian locations and a decrease of 8% at Other International locations. While lower gasoline prices impacted U.S. comps, currency fluctuations adversely affected international comps.