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Will Higher Revenues Drive Costco's (COST) Q2 Earnings?

Costco Wholesale CorporationCOST is slated to report second-quarter fiscal 2019 results on Mar 7. In the las t report ed quarter, this Issaquah, WA-based company's bottom line underperformed the Zacks Consensus Estimate by a penny. Let's see how things are shaping up prior to this announcement.

The Zacks Consensus Estimate for the quarter under review is $1.67, reflecting year-over-year increase of roughly 17.6%. We observe that the Zacks Consensus Estimate has advanced three cents in the past 30 days. The Zacks Consensus Estimate for revenues currently stands at $35,651 million, exhibiting year-over-year jump of roughly 8%. In the last reported quarter, the company's net sales grew 10.2%.

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 products at heavily discounted prices has helped it to remain on growth track. We believe that the company's growth strategies, sturdy comparable sales (comps) performance and strong membership trends bode well for the stock.

Additionally, a differentiated product range enables the company to provide an upscale shopping experience for its members, consequently resulting in market share gains and higher sales per square foot.

Costco Wholesale Corporation Price, Consensus and EPS Surprise

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

This operator of membership warehouses reported comps for the month of January 2019. The metric increased 5.2% for the four-week ended Feb 3, 2019. This follows an increase of 6.1% in December and 9.2% in November. January comps reflect an increase of 6.6% and 6.5% in the United States and Other International locations, respectively, but a decline of 2.9% in Canada.

Management highlighted that with Lunar New Year commencing 11 days earlier this year compared with last year positively impacted total sales and Other International sales by approximately 0.5% and 4.5%, respectively. As a result, sales for February are likely to be negatively impacted on account of this.

Moving on, Costco is also steadily expanding e-commerce capabilities in the United States, Canada, the U.K., Mexico, Korea and Taiwan. E-commerce comparable sales rose 22.1% in the month of January 2019, following an increase of 13.6% and 46.1% in the months of December and November, respectively.

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 incremental investments or aggressive pricing strategy may hurt margins. Moreover, rising SG&A expenses and stiff competition also remain concerns.

Model Predicts Higher Probability of Earnings Beat

Our proven model shows that Costco is likely to beat estimates this quarter. 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 a Zacks Rank #3 and an Earnings ESP of +0.62%. This makes us reasonably confident of an earnings beat.

Stocks With Favorable Combination

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

Zumiez ZUMZ has an Earnings ESP of +0.45% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

Abercrombie & Fitch ANF has an Earnings ESP of +2.28% and a Zacks Rank #2.

Ollie's Bargain Outlet OLLI has an Earnings ESP of +1.43% and a Zacks Rank #2.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?

From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 - 2017, they soared far above the market's +126.3%, reaching +181.9%.

This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.

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Costco Wholesale Corporation (COST): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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