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Costco (COST) Queues Up for Q2 Earnings: Factors to Know

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Zacks Equity Research
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Costco Wholesale Corporation COST is likely to register an increase in the bottom line when it reports second-quarter fiscal 2021 numbers on Mar 4, after the closing bell. We note that the Zacks Consensus Estimate for earnings for the quarter under review has increased by a penny over the past seven days to $2.42. The figure suggests growth of roughly 15.2% from the year-ago period.

Notably, this Issaquah, WA-based company has a trailing four-quarter earnings surprise of 5.5%, on average. In the last reported quarter, the company delivered an earnings surprise of 12.3%.

Meanwhile, the Zacks Consensus Estimate for revenues is pegged at $44,410 million, indicating an improvement of 13.7% from the prior-year reported figure.

Key Factors to Note

Costco’s growth strategies, better price management, decent membership trends and increasing penetration of e-commerce business have been contributing to its upbeat performance. Thanks to its status of “essential retailer,” the company has been benefiting from coronavirus-induced spike in demand. In fact, the company’s strategy to sell products at discounted prices has helped it expand customer base. Additionally, recent stimulus checks of $600 to individuals have also fueled demand.

Cumulatively, these factors have been aiding this operator of membership warehouses in registering impressive comparable sales run. The company witnessed an increase of 17.9% in net sales during the four-week period ended Jan 31, 2021, while comparable sales during the same period rose 15.9%. This followed an increase of 12.3% in net sales and 10.7% in comparable sales in December 2020.

Notably, the company has been rapidly adopting the omni-channel mantra to provide a seamless shopping experience, whether online or in stores. Consumers’ increased shift to online purchasing owing to the coronavirus outbreak seems to have worked in favor of the company. Costco’s e-commerce sales have been showcasing a sharp increase courtesy of growing stay-at-home trends amid the pandemic.

We note that e-commerce comparable sales soared 106.7% in in January 2021. This followed an increase of 62.5% in December 2020.

While aforementioned factors raise optimism about the outcome, margins still remain an area to watch. 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 margins. Further, the impact of incremental wages and sanitation costs owing to the coronavirus outbreak cannot be ignored.

Costco Wholesale Corporation Price, Consensus and EPS Surprise

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

What the Zacks Model Unveils

Our proven model predicts an earnings beat for Costco this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Costco has a Zacks Rank #3 and an Earnings ESP of +1.81%.

3 More Stocks With Favorable Combination

Here are three other companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

Dollar Tree DLTR has an Earnings ESP of +1.94% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Target TGT has an Earnings ESP of +2.66% and a Zacks Rank #2.

Dollar General DG has an Earnings ESP of +1.23% and a Zacks Rank #3.

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