Costco Wholesale Corporation
), a leading U.S. warehouse club operator, posted its
fourth-quarter 2012 results on October 11. Here we will discuss the
company's scorecard based on the recent earnings announcement,
subsequent estimate revisions by analysts as well as the Zacks Rank
and long-term recommendation for the stock.
Last Quarter Synopsis
Costco Wholesale Corporation, posted better-than-expected
fourth-quarter 2012 results. The quarterly earnings of $1.39 per
share beat the Zacks Consensus Estimate of $1.30, and surged 28.7%
from $1.08 earned in the prior-year period.
The boost in the bottom-line was buoyed by a double-digit growth
in the top-line due to improved sales of discretionary items, as
consumers seeking discounts started flocking to warehouse clubs,
and rise in membership fees.
The company's total revenue, which includes net sales and
membership fee, climbed 14.3% to $32,218 million from the
prior-year quarter, and surpassed the Zacks Consensus Estimate of
$31,902 million. Net sales jumped 14.3% to $31,524 million, whereas
membership fee rose 17.6% to $694 million. eCommerce sales
including Costco.com and Costco.ca, surged 14%.
Costco's comparable-store sales for the fourth quarter ascended
5%, buoyed by a 6% and 2% jump in comparable-store sales in the
U.S. and international locations, respectively.
(Read our full coverage on this earnings report:
Costco Beats on Higher Sales
Agreement of Estimate Revisions
For the first quarter of 2013, a negative inclination was
visible in 4 out of 22 analysts covering the stock lowering their
estimates, whereas only 1 analyst raised the same in the last 7
days. However, for the second quarter, a positive attitude was
witnessed among 3 analysts who made upward revisions, whereas 2
analysts trimmed their estimates.
Fiscal 2013 portrays a strong positive bias, with 13 analysts
moving their estimates upwards, while only 1 analyst lowered the
same in the last 7 days. For fiscal 2014, 3 analysts increased
their estimates, whereas 2 analysts decreased the same over the
same time frame.
What Drives Estimate Revision
Clearly, a positive sentiment is palpable among most of the
analysts, who remain optimistic on Costco's performance.
Better-than-expected results impressed the analysts, who went on to
revise their estimates upwards. Analysts raising their estimates
are also counting upon healthy September comparable-sales results,
effective cost management, and Costco's rapid club expansion plan.
The company plans to open approximately 27 to 30 new outlets during
fiscal 2013, after opening 16 new locations in fiscal 2012.
However, some of the analysts remained apprehensive as they
remained concerned about erratic consumer behavior, competitive
pricing, increase in operating expenses and merchandise margin
Magnitude of Estimate Revisions
The Zacks Consensus Estimate for the first quarter of fiscal
2013 dropped by a penny to 92 cents a share in the last 7 days. For
the second quarter it did not show any movement, and remained
constant at $1.06 as the upward and downward revisions in estimates
made by analysts neutralized each other.
For fiscal 2013, the Zacks Consensus Estimate jumped 5 cents to
$4.49 in the last 7 days. The Zacks Consensus Estimate elevated by
4 cents to $4.96 for fiscal 2014.
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.
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
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.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that
earnings estimate revisions are the most powerful force impacting
stock prices. He turned this ground breaking discovery into two
of the most celebrating stock rating systems in use today. The
Zacks Rank for stock trading in a 1 to 3 month time horizon and
the Zacks Recommendation for long-term investing (6+ months).
These "Earnings Estimate Scorecard" articles help analyze the
important aspects of estimate revisions for each stock after
their quarterly earnings announcements. Learn more about earnings
estimates and our proven stock ratings at
COSTCO WHOLE CP (COST): Free Stock Analysis
TARGET CORP (TGT): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis
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