Why Costco and Lumentum Fell After Hours on Wednesday

The stock market continued a trend that we've seen play out several times this week, as various parts of the market did well while others underperformed. The Nasdaq Composite (^IXIC -1.49%) kept falling to begin the second quarter, but the Dow Jones Industrial Average (^DJI -0.77%) posted solid gains that helped cut losses for the broader S&P 500 (^GSPC -1.11%).

Data source: Yahoo! Finance.

Both Costco Wholesale (COST -1.72%) and Lumentum Holdings (LITE -1.55%) were slightly lower in the regular trading session on Wednesday. However, both stocks fell more sharply after the closing bell, with their latest announcements about business conditions leading their shareholders to expect a greater chance of troubled times ahead. Read on to learn more about what Costco and Lumentum said and why investors are reacting negatively to the news.

Costco sees weaker sales

Shares of Costco Wholesale were down between 2% and 3% on Wednesday afternoon. The warehouse retail pioneer reported March sales figures that failed to live up to high expectations from investors and raised concerns about the health of the consumer economy.

Costco's numbers for the five-week period that ended April 2 weren't good. Overall, net revenue came in at $21.71 billion, up just 0.5% from the same period a year ago. Comparable-sales figures were even worse, with total company comps down 1.1% year over year.

Admittedly, some of the decline came from adverse impacts from changes in gasoline prices and foreign-exchange impacts. However, even taking those factors into account, adjusted comps were up just 2.6% companywide, with U.S. comps rising only 0.9%. Moreover, Costco is seeing a real shift away from e-commerce, where comparable sales plunged 11.6% on an adjusted basis.

Most investors remain comfortable with Costco's ability to overcome economic obstacles in the long run. However, that doesn't mean that the stock isn't susceptible to short-term price swings, and shareholders are on the lookout for any lasting change in consumer behavior that could pose a real threat to Costco's long-held dominance.

Lumentum gets some bad news

Shares of Lumentum Holdings were down more sharply, falling 9% in trading after hours on Wednesday. The maker of optical and photonic technology reported preliminary fiscal third-quarter financial results for the period that ended April 1, and the news included a negative surprise that was disappointing for shareholders.

Lumentum cut its guidance for revenue for the period dramatically. The company cited a network equipment manufacturing customer that represented more than 10% of its sales for the previous quarter telling Lumentum that it wouldn't accept anticipated shipments during the period. Moreover, Lumentum doesn't expect this merely to be a timing issue, as it sees continued weakness in sales to this particular customer in the current fiscal fourth quarter.

As a result, Lumentum now sees revenue of between $380 million and $384 million. That's sharply below the $430 million to $460 million in sales that the company had previously expected.

To try to cushion the blow, Lumentum highlighted the recent increase in its stock buyback authorization and said that it had already used $615 million of the $1.2 billion available to repurchase 7.4 million shares. That expression of confidence is a reasonable attempt to ease tension among shareholders. But some will want to wait until Lumentum's full release of quarterly figures on May 9 before drawing any long-term conclusions about the company's prospects for business success.