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Shrinking margins cloud Costco's profit beat, shares fall
Costco's profit scraped past estimates, helped by a hike in membership fees.A drop in gross margins fueled concerns of an intensifying grocer price war, however.Costco faces increased competition from online giant Amazon.com, which has begun to shake up the grocery space with its acquisition of Whole Foods. CNBC Luke Sharrett | Bloomberg | Getty Images A bakery employee distributes baked goods onto a display rack inside a Costco Wholesale store in Nashville, Tennessee.
Costco Wholesale's quarterly profit scraped past estimates, helped by a hike in membership fees, but a fall in gross margins fueled concerns of an intensifying grocer price war, sending shares down 3.6 percent in after-market trading.
Investors are wary that Costco's business model, which mainly generates revenue through a niche membership club, faces increased competition from online giant Amazon.com, which has begun to shake up the grocery space with its acquisition of Whole Foods.
Gross margins in the fourth quarter were lower year-over-year by 15 basis points, as the retailer spends to drive sales and member loyalty, Costco said on a post-earnings conference call on Thursday.
"We believe near-term sentiment and fear of the long-term impact of Amazon on Costco's business could continue to create an overhang on COST shares and limit valuation upside," BMO Capital Markets analysts said in a pre-earnings client note.
Costco's shares have fallen 7.2 percent since the Amazon-Whole Foods deal was announced in June.
Will they ever learn? Costco | Stock Discussion ForumsShare