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Solid Comps, Initiatives to Aid Costco's (COST) Q2 Earnings

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Costco Wholesale Corporation (COST - Free Report) is slated to report second-quarter fiscal 2018 results on Mar 7. In the preceding three quarters, the company had outperformed the Zacks Consensus Estimate. Let’s see how things are shaping up prior to this announcement.

Investors are keeping their fingers crossed and hoping for a positive earnings surprise from Costco in the quarter to be reported. The current Zacks Consensus Estimate for the quarter under review is $1.45, reflecting a year-over-year increase of roughly 24%. We observe that the Zacks Consensus Estimate has increased by a couple of cents in the past 30 days. Analysts polled by Zacks expect revenues of $32,719 million, up approximately 10% from the year-ago quarter.

Which Factors Hold Key to Costco’s Performance?

We believe that the company’s growth strategies, sturdy comparable-store sales (comps) performance, strong membership trends and higher penetration of Citi Visa co-brand card program are the pillars that reinforce its position. While major chains are grappling with sluggish store and mall traffic as consumers switch to online shopping, this Issaquah, WA-based company seems somewhat resilient to the challenging retail backdrop.

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 products at heavily discounted prices has helped it to remain on growth track. The company remains committed toward opening new clubs in domestic and international markets.

Additionally, a differentiated product range enables Costco to provide an upscale shopping experience for its members, consequently resulting in market share gains and higher sales per square foot. It is also gradually expanding e-commerce capabilities in the United States, Canada, UK, Mexico, Korea and Taiwan. Consequently, comparable e-commerce sales surged 34.8% in January, 33.3% in December and 39% in November.

Costco continued with positive comps performance driven by improved store traffic and average transaction size. Comps for January increased 6%, following an increase of 11.5% in December, 10.8% in November. Net sales increased 8.4%, 14.3% and 13.2% in the respective periods.

Costco Wholesale Corporation Price, Consensus and EPS Surprise

 

Costco Wholesale Corporation Price, Consensus and EPS Surprise | Costco Wholesale Corporation Quote

Model Predicts Higher Probability of Earnings Beat

Our proven model shows that Costco is likely to beat estimates this quarter. This is because a stock needs to have both — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Costco has an Earnings ESP of +4.61% and a Zacks Rank #3. This makes us reasonably confident that the bottom line is likely to outperform estimates.

Other Stocks With Favorable Combination

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

Burlington Stores, Inc. (BURL - Free Report) has an Earnings ESP of +4.08% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ross Stores (ROST - Free Report) has an Earnings ESP of +1.37% and a Zacks Rank #2.

Urban Outfitters (URBN - Free Report) has an Earnings ESP of +0.85% and a Zacks Rank #3.

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