Jhe retail sector has been under pressure in recent months as investors digest the impact of rising inflation at a time when the Federal Reserve is also raising interest rates. Despite this backdrop, Costco (COST) is still expected to generate higher year-over-year earnings on higher revenue when it reports results.
The nation’s largest warehouse retailer will release its fourth-quarter fiscal 2022 results after the closing bell on Thursday. Costco’s membership business model has successfully weathered various periods of uncertainty and difficulty in economic cycles. The company has demonstrated its ability to deliver significant returns to investors and the market expects this trend to continue in the coming quarters.
Additionally, Costco’s financial strength and ability to deliver strong value to consumers is a key differentiator for the stock in today’s market environment. The company recently announced comparable sales growth for the month of August, revealing an increase of 10.1%, while net sales of $17.55 billion rose 11.4% d one year to the next. Equally impressive, same-store sales, excluding the impacts of gas price and currency changes, rose 8.7%, while e-commerce same-store sales rose 3.9%. Even with these good results, the title is down 11% since the start of the year, including 6% in the last week alone.
Investors continue to weigh the potential impact on consumer spending that rate increases will have, and perhaps worse, a recession. On Thursday, the company will have to speak positively about its growth prospects and the macro impact on its customers. That said, with membership renewal rates consistently above/around 90%, Costco stock won’t stay flat for long. The company’s profit margin forecast on Thursday should also reflect that confidence.
For the quarter that ended in August, analysts expect Costco to earn $4.16 a share on revenue of $72.06 billion. That compares to the year-ago quarter where earnings were $3.90 per share on revenue of $62.67 billion. For the full year, profit of $13.13 would be up 18% year over year, while annual revenue of $226.78 billion would be up 15.7% year over year. year-over-year, surpassing last year’s $195.93 billion mark.
The company’s “bulk buying” business profile has made it a standout during weak macroeconomic times. Currently operating 830 warehouses, including 574 in the United States and Puerto Rico, 105 in Canada, the company has not seen any notable declines in the past two quarters. Not only does Costco always find ways not to increase its overall membership count, but the company also incentivizes its club members to spend more and attract tons of foot traffic.
This grand brick-and-mortar scale has helped the company beat consensus revenue estimates in each of the past five quarters, despite operating in a highly competitive and mature retail industry, which includes giants Walmart (WMT), Target (TGT) and Amazon. (AMZN). Additionally, after recently revamping its mobile app, Costco has also begun to reap the rewards of its e-commerce and online investments. In the third fiscal quarter, the company beat both revenue and net income, posting adjusted EPS of $3.17 per share, beating consensus estimates by 15 cents.
Third-quarter revenue of $52.6 billion was up 16.16% year-over-year, beating analysts’ forecast of $1.19 billion. Equally impressive, third-quarter adjusted same-store sales in the United States increased 10.7%, while international same-store sales increased 9.1%. Remarkably, same-store online sales increased 7.9% year-over-year. These metrics reflect how the company is capitalizing on offline and online opportunities. Investors will want to see these strong fundamental trends continue on Thursday. Company advice will be even more important in assessing consumer strength.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.