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Costco Earnings Preview: What to Look Out For

Posted on Thursday, May 28th, 2020 by Sean Sechler

Costco Earnings Preview: What to Look Out For

There are certain companies that have been affected in a positive way by the global health pandemic, and their stock prices have reacted favorably as a result. The big question is whether or not these businesses are simply the beneficiary of current circumstances or if they can continue generating positive earnings results over time. That’s why it’s always important to take a deep dive into a business’s earnings before you decide to invest.

One industry that has been very strong is the discount retailer space. Look no further than shopping giants like Walmart (NYSE:WMT), Target (NYSE:TGT), and Costco (NASDAQ:COST) for discount retail businesses that have really been firing on all cylinders. Costco reports their third-quarter earnings after the market close on Thursday, May 28th. Many investors are anxious to see their numbers and the full impact of the “hoarding mentality” that has taken over many areas of the United States.

If you are a Costco shareholder or simply want to learn more about what to look out for in their earnings report, this article is for you. Keep reading below to learn about some key things to look out for when Costco reports Q3 earnings this week.

Sales Figures

One of the key financial metrics that investors are interested in for Costco’s upcoming earnings report is its quarterly sales figures. We know that Costco has sold a lot of essential items throughout the global health crisis. In fact, the company was forced to implement shopping limits on certain items such as toilet paper and bottled water for a period of time since shoppers were buying so much during a single visit. These shopping limits have ceased, but it gives you some insight into just how much of an impact the global health crisis might be having on Costco’s sales.

Keep an eye out for sales trend updates such as adjusted global net sales, e-commerce sales, and gasoline sales to really get a good idea about Costco’s quarter. We already have access to the April sales data, which came in at $11.39 billion for the retail month of April. This number was actually a decrease of 1.8% from the same period last year. The decrease has to do with negative impacts from stay-at-home order and social distancing restriction, which had a direct impact on foot traffic at Costco’s warehouses. It will be interesting to see if sales bounced back in May.

EPS Growth

Two of the most common figures that the street looks at when a company reports its quarterly earnings include Revenue and Earnings Per Share numbers. Many investors are expecting strong EPS growth from Costco, and a miss could lead to short-term downside for the share price. Costco’s earnings have been steadily growing over the last several years and analysts are anticipating strong year-over-year EPS growth for this quarter.

EPS growth is an important metric for a company like Costco because it shows how much money the company is making for its shareholders. If you want to go even deeper, it’s also a smart idea to listen to management’s projections for the upcoming quarter, especially now that they have had some time to digest the situation with COVID-19. Although it’s unlikely that management will provide forward guidance, you can still gain insight into what they expect by listening to the earnings conference call.

Policy Updates & Membership Numbers

Costco has been quite strict with regards to social distancing policies and requiring its members to wear masks while inside of their warehouses. The company has experienced some backlash as a result, which is why it will be interesting to hear what their management team has to say about these policies and whether or not they will continue. Social distancing measures have certainly affected Costco, with many warehouse locations reporting lower foot traffic in April. Don’t be surprised to see Costco shift towards ramping up its delivery options and so that members can elect for contactless shopping during the pandemic.

Another important figure to look out for when Costco reports their earnings is new memberships. In Q2, Costco was able to grow its membership base by roughly 1 million new customers. These memberships are important because they provide high-margin revenue for the company and can help investors out with another way to measure the company’s growth. Look out for the new membership numbers as well as any policy updates when Costco reports this Thursday.

All Eyes on Costco

Several other major discount retailers have already reported positive earnings, and all eyes will be on Costco this Thursday. It will be fascinating to see if the company can live up to analyst expectations, particularly since they are quite optimistic. The Washington-based wholesaler has been very reliable with growing its earnings and revenue over the years. Let’s see if that trend can continue in the age of COVID-19.

 

 

 

 

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Walmart (WMT)2.2$124.44-2.0%1.74%23.66Buy$132.53
Costco Wholesale (COST)2.2$316.32+0.0%0.89%37.84Buy$321.87

8 Stocks You Can Count On During Any Crisis

Depending on how you look at it, the economic outlook is getting cloudier or clearer.

The argument for a cloudy economy is easy to make. Multiple times of day we hear about more Americans testing positive for the novel coronavirus. The worldwide number of positive tests exceeds one million. And unfortunately, it will go higher. We just don’t know by how much.

But there are two parts to this ongoing situation. The first is the real-time science experiment as the world attempts to flatten the curve. The other is the very real economic impact. And the numbers of the economic carnage are coming in faster than any significant evidence of a flattening curve.

The number of unemployed now exceeds six million and will only rise. The government is throwing everything including the kitchen sink at the problem. But it’s an experiment in real-time. We won’t know the results for some time.

But even while we wait for a new normal to return, there are ways for you to profit. There are companies that are keeping our economy going now, and have a business model that sets them up well for success after the pandemic is over.

View the "8 Stocks You Can Count On During Any Crisis".

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