Back to top

Image: Bigstock

Factors Likely to Decide Costco's (COST) Fate in Q1 Earnings

Read MoreHide Full Article

Costco Wholesale Corporation (COST - Free Report) is likely to register an increase in the bottom line when it reports first-quarter fiscal 2021 numbers on Dec 10, after the closing bell. We note that the Zacks Consensus Estimate for earnings for the quarter under review has increased by 2% over the past seven days to $2.04. The figure suggests growth of roughly 18% from the year-ago period.

Notably, this Issaquah, WA-based company has a trailing four-quarter earnings surprise of 2.9%, on average. In the last reported quarter, the company delivered an earnings surprise of 9.8%.

Meanwhile, the Zacks Consensus Estimate for revenues is pegged at $42,432 million, indicating an improvement of 14.6% 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. Cumulatively, these factors have been aiding this operator of membership warehouses in registering impressive comparable sales run.

In fact, the company’s strategy to sell products at discounted prices has helped it expand customer base. Under the current circumstances, people are exhibiting a preference for discount stores for essentials or other daily purchases. Apparently, Costco has emerged as viable option for them. The company’s differentiated product range resonates well with customers’ spending habits.

For the 12-week first quarter ended Nov 22, 2020, Costco generated net sales of $42.35 billion, which reflects an increase of 16.9% from net sales of $36.24 billion reported during the same period last year. Again, comparable sales for the quarter under review rose 15.4%, reflecting an improvement of 14.6%, 16.2% and 18.7% in the United States, Canada and Other International locations, respectively.

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. The company’s e-commerce sales have been showcasing a sharp increase courtesy of growing stay-at-home trends to maintain social distancing amid the pandemic. We note that e-commerce comparable sales soared 86.4% during the quarter.

Certainly, the company’s strategic endeavors have been fueling traffic. However, analysts pointed that any deleverage in SG&A rate, higher labor and occupancy costs, and increased marketing and other store-related expenses might have strained margins. Further, incremental wages and sanitation costs owing to the coronavirus outbreak cannot be ignored.

Dollar General Corporation Price, Consensus and EPS Surprise

Dollar General Corporation Price, Consensus and EPS Surprise

Dollar General Corporation price-consensus-eps-surprise-chart | Dollar General 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 +0.20%.

3 More Stocks With the 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:

Chewy, Inc. (CHWY - Free Report) has an Earnings ESP of +4.85% and a Zacks Rank #2, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

G-III Apparel (GIII - Free Report) currently has an Earnings ESP of +17.05% and a Zacks Rank #3.

AutoZone (AZO - Free Report) presently has an Earnings ESP of +2.29% and a Zacks Rank #3.

Breakout Biotech Stocks with Triple-Digit Profit Potential

The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.

Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.

See these 7 breakthrough stocks now>>

Published in