Costco Wholesale Corporation
), one of the leading U.S. warehouse club operators and an S&P
500 company, is slated to report its fourth quarter and fiscal 2012
financial results on Wednesday, October 10.
The current Zacks Consensus Estimate for the quarter is $1.30
per share that reflects a growth of 20.4% from the prior-year
quarter's earnings. The estimates in the current Zacks Consensus
range between a low of $1.25 and a high of $1.33 per share. The
Zacks Consensus revenue estimate is pegged at $31,885 million for
the quarter under discussion.
The current Zacks Consensus Estimate for fiscal 2012 is $3.87
per share. Further, analysts polled by Zacks expect full year
revenue to be $98,849 million.
Recap of Third-Quarter 2012
Costco's third-quarter 2012 earnings of 88 cents a share beat
the Zacks Consensus Estimate by a penny, and surged 20.5% from 73
cents earned in the prior-year period.
The augmentation in the bottom-line was buoyed by a high-single
digit growth in the top-line due to improved sales of discretionary
items, as consumers seeking discounts started flocking to warehouse
The warehouse retailer's total revenue, which includes net sales
and membership fee, climbed 8.2% to $22,324 million from the
prior-year quarter, and handily beat the Zacks Consensus Estimate
of $22,072 million. Net sales jumped 8.2% to $21,849 million,
whereas membership fee rose 9.2% to $475 million.
Costco's comparable-store sales for the quarter rose 5%,
reflecting a comparable sales increase of 5% both at its U.S.
locations and international divisions. The results were favorably
impacted by rising gasoline prices but adversely affected by
foreign currencies fluctuation.
Zacks Agreement & Magnitude
The Zacks Consensus Estimate for the fourth quarter hasn't shown
any movement in the last 30 days, as the upward and downward
revisions made by analysts neutralized the impact. Of the 22
analysts following the stock, 5 analysts revised their estimates
upward and 2 analysts lowered the same in the last 30 days. In the
last 7 days as well, the Zacks Consensus Estimate remained
constant, as the upward revision in the estimates made by 3
analysts and downward revision by 1 analyst did not have a
The Zacks Consensus Estimate for fiscal 2012 rose by a penny in
the last 7 days as the increase in estimates made by 4 analysts and
trimming of the same by 1 analyst triggered a movement in the Zacks
Estimate. In the last 30 days, 6 analysts revised their estimates
upward and 1 analyst lowered the same, thereby pushing the Zacks
Consensus Estimate by the same magnitude.
From the above discussion it is apparent that most of the
analysts are unidirectional while revising their estimates.
Analysts raising their estimates are counting upon
better-than-expected September comparable-sales results and
effective cost management, and anticipate Costco to undertake rapid
club expansion plan. However, some analysts still prefer to be on
the sidelines as they expect merchandise margin to remain under
Mixed Earnings Surprise History
With respect to earnings surprises, Costco has missed, met as
well as topped the Zacks Consensus Estimate over the last four
quarters in the range of negative 0.9% to positive 2.3%. The
average remained at positive 0.7% suggesting that Costco has
outperformed the Zacks Consensus Estimate by the same magnitude in
the trailing four quarters.
In the second quarter of fiscal 2012, the earnings beat the
Zacks Consensus Estimate by 2.3%, whereas in the first and third
quarters it met the Estimates. In the fourth quarter of 2011, the
earnings missed the Estimate by 0.9%.
Costco continues to be a dominant retail wholesaler based on the
breadth and quality of the merchandises it offers. The company's
strategy to sell products at heavily discounted prices has helped
it sustain growth amidst beleaguered economic conditions, as
cash-strapped customers continue to reckon Costco as a viable
option for low-cost necessities. Having delivered consistent
comparable-store sales growth, Costco is well positioned in the
warehouse club industry.
A differentiated product range enables Costco to provide an
upscale shopping experience to its members, resulting in market
share gains and higher sales per square foot. Moreover, the company
continues to maintain a healthy membership renewal rate. Costco
also remains committed to opening new clubs in domestic and
international markets. The company's diversification strategy is a
natural hedge against risks that may arise in specific markets.
However, Costco faces stiff competition from
) and Sam's Club, a division of
Wal-Mart Stores Inc.
), which follows a similar business model that pushes through high
volumes of merchandise at low prices in membership-only warehouse
clubs. Thus, aggressive pricing to gain market share and drive
traffic amid stiff competition may depress sales and margins.
Costco expects to open 14 new warehouses before December 31,
2012. It currently operates 608 warehouses, comprising 439
warehouses in the United States and Puerto Rico, 82 in Canada, 32
in Mexico, 22 in the United Kingdom, 13 in Japan, 9 in Taiwan, 8 in
Korea and 3 in Australia.
Going by the pulse of the economy, we believe that
budget-constrained consumers will remain watchful of their spending
and look for discounts. Consequently, we could see more competitive
pricing, compelling products and innovative ways to attract
shoppers. Currently, we maintain our long-term "Neutral"
recommendation on the stock. However, Costco holds a Zacks #2 Rank
that translates into a short-term "Buy" rating.
COSTCO WHOLE CP (COST): Free Stock Analysis
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