As the financial markets prepare for Costco Wholesale Corporation (COST) to announce its quarterly earnings after today’s market close, investors and analysts are keenly interested in the nuances that might affect the company’s performance. This curiosity is exacerbated by macroeconomic factors such as escalating gas prices, rising student loan repayments, and mounting interest rates, which collectively impact consumer spending power. Market consensus currently projects an adjusted Earnings Per Share (EPS) of $4.79 and revenues totaling $77.7 billion, with an anticipated 1.87% increase in same-store sales.
AB Bernstein’s financial analyst Dean Rosenblum opines that the likelihood of a substantial revenue surprise is limited, given that Costco consistently provides monthly sales updates. Furthermore, the company has already reported its financial figures for 52 out of the 53 weeks in the fiscal year 2022-2023, thereby providing significant transparency into its operations.
However, Rosenblum does caution that there may be room for a modest deviation from expectations, pointing to a recent trend where sales have slightly missed the consensus estimates for the last three fiscal quarters. This could indicate a broader trend of consumer caution amid uncertain economic conditions.
Evercore’s Greg Melich notes that comparable store sales have been waning steadily for the past year, with the company experiencing its lowest comparable sales growth since 2017. In the quarter ending May 2022, the year-over-year increase was 14.9%, but that figure declined to 3.5% by the same month this year. This deceleration is also supported by data from FactSet.
Despite a concerning start to the quarter, Melich suggests that sales have been progressively rebounding throughout the summer months. Data analytics from Placer.ai corroborate this view, indicating an increase in consumer visits to Costco in comparison to the same period last year.
Contributing to this uptick, Shira Petrack, an analyst writing for Placer, observes that Costco has solidified its position as a crucial retail destination for back-to-school shopping. She notes that the 2023 visitor behavior patterns further underscore the retailer’s growing influence in this segment.
Melich currently holds an “Outperform” rating for Costco’s stock, with a targeted price of $600, and includes the company among his top five recommendations. Another subject to watch closely in the upcoming announcement is the potential adjustment in annual membership fees. Brian Yarbrough of Edward Jones points out that membership fees account for a staggering 70% of Costco’s operating profits, suggesting that any changes in this aspect could significantly impact the company’s bottom line.
Notably, Rosenblum suggests that a fee increase may be forthcoming, given that the cost of core staples has somewhat stabilized recently. Such an adjustment is eagerly awaited by Wall Street and could serve as a catalyst for further stock appreciation, considering that Costco shares have already outperformed the S&P 500 index this year, gaining 22% compared to the S&P’s 13%.
In conclusion, the various economic and internal factors influencing Costco’s quarterly results warrant close scrutiny, especially in an environment characterized by numerous financial variables and a fickle consumer base. Whether Costco’s earnings announcement can defy these challenges remains to be seen.
