The retailer's quarterly profit shot up 29 percent. It was likely fueled by falling gas prices, says an analyst. Fred Katayama reports.
Falling gas prices may have actually helped fuel Costco's earnings. Its income shot up 29 percent in the latest quarter. Its margins widened because prices at the pump fall at a slower rate than the cost of providing the fuel. Guggenheim analyst John Heinbockel said, "This represents the greatest year-on-year increase in gross margin in recent history and was likely almost entirely driven by gas margins." U.S. crude prices fell 30 percent during the quarter. Costco's results were also partly aided by a tax benefit related to its cash dividend last month. That profit sailed past analysts estimates. Also surprising Wall Street: the big increase in sales at existing stores. Costco is the U.S.' third largest retailer. It caters to loyal, affluent customers, one reason why Citigroup bid aggressively to knock out American Express to become the retailer's exclusive co-branded credit card partner. Costco's shares rose in early trading, adding to its 26 percent gain over the past 12 months. During that time, Its shares have risen more than twice that of rival Wal-Mart, which runs the Sam's Club warehouses. But Heinbockel says it'll be hard for the shares to keep outperforming. He says gas margins may move back towards their average, and the strong dollar could impact Costco's earnings momentum.