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Costco (COST) to Post Q1 Earnings: Comps to Play a Key Role

Zacks Equity Research

Costco Wholesale Corporation COST, which is slated to report first-quarter fiscal 2020 results on Dec 12, has been gaining from its comparable sales (comps). The company’s better price management, solid membership trends and increasing penetration of the e-commerce business are yielding results. To top it, a strong labor market and favorable consumer sentiments are broader factors working in favor of Costco.

Markedly, Costco recently posted sales numbers for the first quarter ended Nov 24, wherein total comps increased 4.3%, with the United States, Canada and Other International locations comps up 4.7%, 2.9% and 3.2%, respectively. Excluding the impact of foreign currency fluctuations and changes in gasoline prices, total comps for the quarter rose 5%, with 5%, 5.1% and 4.5% increase in the United States, Canada and Other International locations, respectively. Meanwhile, net sales for the quarter ended Nov 24 rose 5.6% to $36.24 billion.

Concurrently, Costco reported comps and sales numbers for the four weeks ended Dec 1, or the retail month of November. In the said time frame, comps increased 5.3% and 4.8% on excluding the impact of foreign currency fluctuations and changes in gasoline prices. Further, net sales grew 6.7% to $12.77 billion for November. However, management stated that November e-commerce sales were adversely impacted by unfavorable timing shift of Thanksgiving/Black Friday/Cyber Monday. Also, Costco faced some website issues its U.S. and Canadian e-commerce websites on Thanksgiving Day and Black Friday.

These factors hurt e-commerce sales by around 20 percentage points in November, with total comps bearing a 1.5% negative impact from the same. Nevertheless, Costco’s e-commerce comps grew 5.5% for the first quarter. The company has been steadily expanding e-commerce capabilities in the United States, Canada, the U.K., Mexico, Korea and Taiwan. Toward this end, Costco’s launch of delivery service, CostcoGrocery, and collaboration with Instacart have been yielding favorably and driving traffic.

Certainly, the company’s strategy of selling products at heavily discounted prices together with its differentiated product range and efforts to keep pace with the evolving retail landscape has been driving traffic across online and brick-and-mortar platforms. This, in turn, has been aiding comps of this Zacks Rank #3 (Hold) company. Apart from Costco, major retailers like Target TGT, Walmart WMT and TJX Companies TJX have been benefiting from robust comps.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Costco Wholesale Corporation Price, Consensus and EPS Surprise

Costco Wholesale Corporation Price, Consensus and EPS Surprise

Costco Wholesale Corporation price-consensus-eps-surprise-chart | Costco Wholesale Corporation Quote

Other Trends Deciding Costco’s Fate

Analysts pointed that any deleverage in SG&A rate, higher labor and occupancy costs, and increased marketing and other store-related expenses might have weighed on Costco’s margins in the to-be-reported quarter. Also, increasing competition on attributes such as price, products and speed to market cannot be ignored.

The Zacks Consensus Estimate for first-quarter earnings has slipped by a penny over the past 30 days to $1.70 per share. However, this suggests an increase of 5.6% from the year-ago period’s reported figure. The consensus mark for revenues stands at $37.43 billion, indicating a rise of 6.7% from the figure reported in the year-ago quarter. (Read More: Here's Why Costco Q1 Earnings Are Likely to Improve).

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