Earnings Preview: Costco - Analyst Blog
May 21 2012 - 5:00AM
Zacks
Costco Wholesale
Corporation (COST), one of the leading U.S. warehouse club
operators, is slated to report its third-quarter 2012 financial
results on Thursday, May 24.
The current Zacks Consensus
Estimate for the quarter is 87 cents a share that reflects a growth
of 8.8% from the prior-year quarter’s earnings. The estimates in
the current Zacks Consensus range between a low of 81 cents and a
high of 90 cents a share. The Zacks Consensus revenue estimate is
pegged at $22,737 million for the quarter under discussion.
Recap of Second-Quarter
2012
Costco’s second-quarter 2012
earnings of 90 cents a share came ahead of the Zacks Consensus
Estimate of 88 cents, and rose 13.9% from 79 cents earned in the
prior-year quarter.
The increase in the bottom line was
buoyed by double-digit growth in the top line on the back of
improved sales of discretionary items, asconsumers seeking
discounts started flocking to warehouse clubs.The company’s
international operations have been the major driver.
The warehouse retailer’stotal
revenue, which includes net sales and membership fee, climbed 10%
to $22,967 million from the prior-year quarter, and surpassed the
Zacks Consensus Estimate of $22,737 million. Net sales jumped 10.1%
to $22,508 million, whereas membership fee rose 7.7% to $459
million.
Costco’s comparable-store sales for
the quarter rose 8%, reflecting a comparable sales increase of 8%
both at its U.S. locations and international divisions.
Zacks Agreement &
Magnitude
The Zacks Consensus Estimate for
the third quarter hasn’t shown any movement in the last 30 days, as
the upward and downward revisions made by analysts neutralized the
impact. Of the 22 analysts following the stock, one analyst revised
the estimate upward and another analyst lowered the same in the
last 30 days. In the last 7 days too, the Zacks Consensus Estimate
remained constant, since an upward revision in the estimate made by
1 analyst did not have a substantial impact. None of the analysts
trimmed their estimates in the last 7 days.
Mixed Earnings Surprise
History
With respect to earnings surprises,
Costcohas missed, met as well as topped the Zacks Consensus
Estimate over the last four quarters in the range of negative 0.9%
to positive 2.3%. The average remained at positive 0.7%. This
suggests that Costco has outperformed the Zacks Consensus Estimate
by an average of 0.7% in the previous four quarters.
In the second quarter of fiscal
2012, the earnings beat the Zacks Consensus Estimate by 2.3%,
whereas in the first quarter it met the Estimate. In the fourth
quarter of 2011, the earnings missed the Estimate by 0.9%, however,
in the third quarter it came in line with the same.
Closing
Comment
Costco continues to be a dominant
retail wholesaler based on the breadth and quality of merchandise
it offers. The company’s strategy to sell products at heavily
discounted prices has helped it to sustain growth in beleaguered
economic conditions as cash-strapped customers continue to reckon
Costco as a viable option for low-cost necessities. Having
delivered consistent comparable-store sales growth, Costco is
strongly positioned in the warehouse club industry.
However, Costco faces stiff
competition from Target Corporation (TGT) and
Sam’s Club, a division of Wal-Mart Stores Inc.
(WMT), which follows a similar business model that pushes through
high volumes of merchandise at low prices in membership-only
warehouse clubs. Thus, aggressive pricing to gain market share and
drive traffic amid stiff competition, may depress sales and
margins.
Based on the pulse of the economy,
we believe that budget-constrained consumers will remain watchful
on their spending and look for discounts. Consequently, we could
see competitive pricing, compelling products and innovative ways to
attract shoppers.
Given the pros and cons, we
maintain our long-term “Neutral” recommendation on the stock.
Moreover, Costco holds a Zacks #3 Rank that translates into a
short-term “Hold” rating, and correlates with our long-term
view.
COSTCO WHOLE CP (COST): Free Stock Analysis Report
TARGET CORP (TGT): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
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