What’s happening: Costco Wholesale is scheduled to report its second-quarter results after the closing bell on Thursday, March 4.
What happened: Costco has topped earnings estimates in the past couple of quarters and expectations are for the company to deliver another beat. Investor sentiment is hugely positive for this stock, given its strong performance versus closest competitors.
Since the company’s second quarter is from December through February, it will include the impact of both holiday sales and the coronavirus outbreak. Costco had a good holiday season and expectations are for the company to have benefited from the coronavirus as well.
- The consensus revenue estimate stands at $38.22 billion, representing 8.0% year-over-year growth.
- The estimate for earnings is $2.06 per share, with 2.5% growth from the same quarter in the previous year.
Why it matters: The Washington-based retailer has significantly increased its market share in the recent period. Considering the last four reported quarters, Costco generated sales of over $150 billion, which is more than double of its two closest competitors (Walmart and BJ’s Wholesale Club) taken together.
Costco opened 20 stores in fiscal 2019 and CFO Richard Galanti said the company plans to open “another 20-ish” this year.
The company’s robust sales and profit growth have been driven by a rise in its subscriber base, despite an increase in annual membership charges. The warehouse club chain, which offers products at very discounted rates, has seen remarkably high retention rates for its members.
Shoppers are now flocking to the warehouse club chain across the country to stock up on groceries, household goods and other items, after a rise in coronavirus cases in the US. This panic buying is expected to continue to boost Costco’s sales.
While other retailers are fearing a period of economic slowdown caused by the virus outbreak, Costco is well positioned, as more consumers look for discounted stores during a financial downturn.
Costco has already indicated strong sales for both January and February, with 9% growth in December shopping. Analysts expect Costco to report traffic growth of at least 3% for the fiscal second quarter, even as Walmart and Target have both reported weakness.
The company is planning to invest heavily in expanding its stores globally and management has projected capital expenditure of $3 billion in fiscal 2020. The forecast includes outlays for improving ecommerce capabilities, focusing on home deliveries of grocery products across the US.
How the shares have performed so far: Costco’s stock gained more than 40% in 2019 and has spiked 8% year to date. Despite this, investor sentiment remains positive, and shares could rally further. Costco’s stock typically becomes volatile just before and after the company reports results, which could be the case this time, as some traders may view the recent share rally as an attractive profit taking opportunity.
What to watch: Costco is under huge pressure to beat estimates this quarter. The retailer is expected to report strong results and investors will focus on its membership metrics, as subscription fees contributes significantly to the company’s earnings. Investors also await more details from management around plans to develop a nationwide delivery network.