Costco's countdown: Decoding earnings and deciphering consumer sentiment

Throughout the pandemic, Costco garnered momentum as an increasing number of Americans turned to home cooking while being stuck at home. At the same time, rising inflation also prompted shoppers to migrate from traditional supermarkets to cost-effective alternatives. Costco was one of these alternatives. 

The retail giant’s upcoming earnings report, scheduled for release at 4:00 pm New York time on Tuesday, 14 December, is poised to provide critical insights into the company’s performance and the broader trajectory of consumer spending.

What to expect from the upcoming earnings report?

According to Bloomberg, Costco’s third-quarter revenue is expected to come in at 57.7 billion USD, while earnings per share (EPS) is expected to be 3.40 USD.

Commentary on what to expect over the next 12 months will have a significant impact on the company’s stock price, particularly as the alleviation of inflationary pressures plays a vital role in this projection.

Costco earnings in the previous quarters

Costco surpassed earnings estimates in the last two quarters with notable figures. For the fourth quarter, they reported:

• Earnings per share: 4.86 USD vs the expected 4.78 USD 
• Revenue: 78.9 billion USD vs the expected 77.7 billion USD

Costco experienced notable growth, ending the period with 71 million paid household members, up 8% from the previous year. Executive memberships rose by almost a million to 32.3 million, constituting 45% of total memberships and nearly three-quarters of global sales.

Chief Financial Officer Richard Galanti noted increased in-store visits despite reduced spending. Consumer trends revealed a pullback in big-ticket and discretionary items, impacting digital sales. However, certain discretionary items, like appliances, saw a significant uptick. 

Costco share price dynamics and company health

Shares of Costco have climbed over 30% so far this year, outperforming the approximate 20% gains of the S&P 500. The stock is trading at its all-time highs above 620 USD.

‍

Looking at the company’s fundamentals, the stock has an annual dividend yield of 0.65%, which may be considered quite low in comparison to the S&P 500’s dividend yield of around 1.49%. Furthermore, with a relatively high price-to-earnings ratio of 42.9, coupled with a high price-earnings-to-growth ratio of 4.44, traders are urged to carefully consider the various factors influencing the stock’s performance.  

Costco’s earnings report will likely offer insights into the company’s trajectory and the broader retail sector. Traders should keep an eye on key indicators, including whether Costco exceeds market expectations in EPS and revenue and the guidance provided for future growth, particularly in the retail space.