Earnings Preview: Costco (COST) looks poised to end fiscal 2024 on a high note

Costco Wholesale Corporation (NASDAQ: COST), which operates a chain of membership warehouses, will unveil its fourth-quarter results on the evening of September 26. It has a good track record of being generally resilient to challenges and maintaining consistent performance in all economic conditions. The company has been ramping up its digital capabilities lately and delivered double-digit e-commerce sales growth in recent quarters.

For over six months, shares of Costco have been trading above their 12-month average price of $728.57. The stock has been in an upward spiral for quite some time and hit a record high last week. With the value nearly doubling in the past three years, COST has emerged as one of the top-performing stocks. The recent price drop presents a buying opportunity that long-term investors wouldn’t miss.

Q4 Report Due

When the retail giant reports fourth-quarter 2024 earnings on Thursday, September 26, after the closing bell, the market will be looking for earnings of $5.08 per share on revenues of $79.93 billion. In the comparable quarter of fiscal 2023, the company earned $4.86 per share and generated $78.94 billion of revenues. In the past four quarters, the bottom line surpassed estimates.

While the recent membership fee hike sparked speculation about customers’ reaction, it is likely to strengthen the bottom line without significantly impacting store traffic. By raising membership fees by about $5 — the first increase in seven years — the management expects to offset operational costs and bring members greater value by keeping prices low.

Value for Customers

When it comes to customer retention, Costco’s continuing efforts to deliver value to shoppers give it an edge over other retailers. That, combined with the attractive product assortment and services like same-day grocery delivery, enables the company to enjoy stable customer loyalty both in times of economic slowdown and upturn. However, the inflation-induced strain on consumer spending and rising competition in the grocery sector could impact long-term sales performance.

Gary Millerchip, who took the helm as chief financial officer of Costco early this year, said during the Q3 2024 earnings call, “We’re intentionally creating incremental value for our members by delivering lower prices wherever possible. We believe our strategy of delivering value to drive unit volume and member satisfaction is the winning combination for us. In that vein, our buying teams are constantly aware of changing costs across all of their SKUs and are ensuring that we’re capturing all cost decreases quickly so that we can pass on incremental value through price reductions.”

Results Beat

In the third quarter, revenues increased to $58.52 billion from $53.65 billion in the corresponding period of 2023 and came in above Wall Street’s projection. There was a 6.6% year-over-year increase in total comparable store sales during the three months. Consequently, May-quarter profit rose sharply to $1.68 billion or $3.78 per share from $1.30 billion or $2.93 per share in the prior-year quarter.

Costco’s stock has dropped about 2% since hitting an all-time high recently. Regaining momentum, it traded slightly higher on Wednesday afternoon.