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Costco (COST) to Report Q2 Earnings: Comps a Key Driver

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Costco Wholesale Corporation (COST - Free Report) is slated to report second-quarter fiscal 2020 results on Mar 5. In the trailing four quarters, this Issaquah, WA-based company’s bottom line has outperformed the Zacks Consensus Estimate by 7.8%, on average. In the last reported quarter, the company delivered a positive earnings surprise of 1.8%.

The Zacks Consensus Estimate for second-quarter earnings is currently pegged at $2.06, which indicates an improvement of 2.5% from the year-ago quarter’s reported figure. We note that the Zacks Consensus Estimate has been stable in the past 30 days. The Zacks Consensus Estimate for revenues currently stands at $38,337 million, suggesting growth of 8.3% from the year-ago reported figure.

Factors Influencing Costco’s Performance

Costco continues to be one of the dominant retail wholesalers based on the breadth and quality of merchandise offered. In fact, the company’s strategy to sell differentiated product range at discounted prices has been resulting in market share gains and higher sales per square foot. We believe that the company’s growth strategies, better price management, decent comparable sales (comps) performance and strong membership trends have been driving the top line.

Notably, comps for the month of January 2020 rose 6.6%, following an increase of 9% in December. The Zacks Consensus Estimate for comps indicates growth of 7% for the second quarter.

The company is rapidly adopting the omni-channel mantra to provide a seamless shopping experience, whether online or in-stores. It has been steadily expanding e-commerce capabilities in the United States, Canada, the U.K., Mexico, Korea, Taiwan and Japan. E-commerce comparable sales surged 17.6% in the month of January.

Certainly, the decent performance indicates that the company’s growth efforts have been fueling traffic across both the online and brick-and-mortar platforms. However, analysts pointed that any deleverage in SG&A rate, higher labor and occupancy costs, and increased marketing and other store-related expenses might also compress margins. Further, increasing competition on attributes such as price, products and speed to market cannot be ignored.

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 #2 and an Earnings ESP of +0.20%.

3 More Stocks With Favorable Combination

Here are some 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 - Free Report) has an Earnings ESP of +0.32% and a Zacks Rank of #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Abercrombie & Fitch (ANF - Free Report) has an Earnings ESP of +0.12% and a Zacks Rank #3.

Casey's General Stores (CASY - Free Report) has an Earnings ESP of +3.45% and a Zacks Rank #3.

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