Costco Q1 Earnings Preview: Key metrics point to another strong quarter

Warehouse club operator Costco Wholesale Corp. (NASDAQ: COST) will be publishing earnings for the first quarter of 2020 on Thursday at 4:15 pm ET. Market watchers forecast earnings of $1.71 per share for the November quarter, up 6% from last year.

Initial estimates published by the company recently showed that net sales rose 5.6% annually to $36.24 billion in the first quarter, slightly below the $37.25-billion sales analysts forecast. Total comparable store sales moved up 4.3%.

Also read: BJ’s Wholesale Q3 Earnings Snapshot

While margins stand to benefit from the stable comparable store performance and private-label sales, high costs related to elevated China tariffs might weigh on profitability. Though trade tensions have eased in recent months, high import duties remain a concern for American retailers.

Key Growth Driver

Competitive pricing and steady membership growth continue to be the primary growth drivers as far as the top-line is concerned. The management’s efforts to ramp up the e-commerce platform, both in the local market and overseas, have been yielding the desired results, adding to sales growth. Meanwhile, there was a dip in online sales in November, mainly due to the timing of holidays and technical issues related to the website.

Unchallenged

Costco has long been a market leader, thanks to the heavy discounts and extensive merchandise assortment. The strategy helps the company keep expanding its market share, which is expected to continue in the coming quarters. In the long term, however, profitability might come under pressure from high operating expenses and labor costs as the company strives to stay ahead of competitors on the pricing and delivery fronts.

Q4 Outcome

Costco ended the fiscal year on a mixed note, with sales moving up 7% annually to $48 billion in the fourth quarter even as comparable-store sales growth slowed. Earnings rose 5% from last year to $2.47 per share and came in above the market’s expectations.

Competition

Recently, Walmart (WMT) raised its full-year guidance after reporting strong third-quarter earnings that exceeded estimates, reflecting its e-commerce initiatives and clout in the domestic market. Earnings rose 7% to $1.16 per share aided by a 2.8% comparable sales growth.

Also see: Costco Q4 2019 Earnings Conference Call Transcript

Last month, Costco shares climbed to a record high, after gaining 43% since the beginning of the year. The stock has maintained a steady uptrend in recent years, often outperforming the market.

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