Previewing Earnings for H-P, NetApp, Tiffany & Costco

Indie Research

Stocks tend to be most volatile around earnings season, when a good or bad report can make or break it. However, a good or even great earnings report doesn't necessarily translate into a huge pop for a stock.

During earnings season, BullMarket.com publishes a comprehensive 20- to 30-page Earnings Preview report for the week ahead each Friday.

Over the past two years, BullMarket.com used the data it has collected to correctly predict investor reactions for nearly two-third of the stocks it's previewed.

In its latest earnings preview, BullMarket.com looks at several popular stocks still set to report earnings, including NetApp (NTAP - News), Hewlett-Packard (HPQ - News), Tiffany (TIF - News), and Costco (COST - News).

Here is just a tiny sample of what BullMarket.com wrote about Costco:

Costco Wholesale operates membership warehouses that offer its members low prices on a limited selection of branded and selected private-label products in a range of merchandise categories. The company buys the majority of its merchandise directly from manufacturers and routes it to a cross-docking consolidation point (depot) or directly to its warehouses. Many consumable products are offered for sale only in case, carton, or multiple-pack quantities. ...

Last quarter, Costco said its fiscal second-quarter profit rose to $394 million, or 90 cents per share, from $348 million, or 79 cents per share, a year earlier.

Net sales jumped 10% to $22.5 billion from $20.45 billion a year ago as same-store sales increased 8%. Comp sales were up 7% excluding fuel and currency impacts.

Analysts had expected EPS of 88 cents.

Costco said it opened two new stores during the quarter, both in Japan, after opening four in the fiscal fourth quarter, all of them in the U.S. It opened another store in Japan after the second quarter closed. It expects to open a total of 17 new stores this year.

The 8% reported comp figure reflected a combination of a 2.4% increase in the average transaction size plus a 5.2% increase in the frequency of visits. The frequency trend during the three months of December, January, and February was plus 5%, plus 5.5%, and plus 5.3%.

Membership fee revenue rose 7.7 percent to $459 million in the quarter, Costco said. The Issaquah, Washington-based chain raised fees for most U.S. and Canadian members by 10 percent on November 1st, but management said the quarter reflected only about $1 million in revenue from the increases, which are pro-rated over the one-year life of the membership.

Geographically, in the U.S. the Midwest, Northeast, and Southeast regions were the strongest. Internationally, in local currencies, comp sales grew 10%, same as in both Q4 of last year and Q1 of 2012. On a category basis, food and soft lines drove sales while electronics lagged. ...

Costco has topped EPS estimates three of the past eight quarters, missing estimates twice and meeting them three times. Over that span, the stock has risen the next session three of eight quarters. Seasonally, the stock has risen once in the past four years. ...

Outside of earnings, Costco is one of the best-run retailers around, and the company should continue to benefit from the continued economic recovery, especially in California. However, the company has seen margin pressure the last several quarters, due in part to aggressive pricing, as well as commodity cost inflation (although that started to abate some last quarter). The company also faces some relatively difficult comps. ...

The full BullMarket.com earnings analysis includes a look at historical earnings data and EPS trends for the companies above and more; examines past investor reactions to earnings in various contexts; gives options activity analysis; reviews previous-quarter earnings; and gives an opinion on both what earnings will look like and how investors will react based on the aforementioned data points.

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