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Key Takeaways

  • Analysts estimate EPS of $3.04 vs. $2.75 in Q3 FY 2021.
  • Comparable sales are expected to rise YOY, but at a slower pace than recent quarters.
  • Revenue is expected to rise as demand remains strong.

Costco Wholesale Corp. (COST) has been enjoying its fastest earnings, revenue, and comparable sales growth in recent years. The company got a big boost from increased spending on food and goods by consumers sheltering at home during the pandemic. Now, Costco’s business model is poised to benefit from the highest inflation in decades as consumers increasingly seek out the lowest-priced goods. While Costco’s growth has been slowing, it’s notable that the company’s revenue is still climbing faster than before the pandemic.

Investors will be watching to see if Costco can maintain its strong financial performance when the company reports earnings on May 26, 2022 for Q3 FY 2022. Costco’s 2021 fiscal year (FY) ended August 29, 2021. Analysts expect earnings per share (EPS) and revenue to rise but at a slower pace than in recent quarters.

Investors also will focus on Costco’s comparable sales growth, a key metric that gauges growth in sales generated by the retailer’s stores and digital channels that have been in operation for at least 12 months.  Analysts expect quarterly comparable sales growth to remain strong, but decelerate to its slowest pace since the third quarter of FY 2020.

Shares of Costco have outperformed the broader market over the past year. Despite volatile movements, the stock’s performance gap with the market gradually widened between early July 2021 and early April 2022. However, the stock has fallen considerably since peaking in April and its performance gap with the market has narrowed significantly. Costco’s shares have provided a total return of 14.9% over the past year, above the S&P 500’s total return of -5.3%.

Source: TradingView.

Costco Earnings History

Costco reported Q2 FY 2022 earnings results that beat analysts’ expectations. EPS rose 36.5% compared to the year-ago quarter, its fastest pace since the third quarter of FY 2021. Revenue grew 15.9% year over year (YOY), its slowest pace since the second quarter of FY 2021. The company said that it experienced sales increases across its various business categories. However, increases were strongest in its gasoline, business centers, and travel businesses. Sales also continued to be impacted by higher-than-expected inflation.

In Q1 FY 2022, Costco’s earnings and revenue beat consensus estimates. EPS increased 13.5% YOY, its slowest pace since the second quarter of FY 2021. Revenue expanded 16.7% compared to the year-ago quarter, continuing its slowing trend begun in the previous quarter. The company said that sales for all of its core merchandise categories increased but that increases were strongest in non-food items, gasoline, and travel items. It also noted that merchandise costs continued to be impacted by inflation.

Analysts expect growth in Costco’s earnings and revenue to slow in Q3 FY 2022. EPS is expected to rise 10.5% YOY, its slowest pace in five quarters. Revenue is expected to grow 13.2% YOY, its slowest pace since the final quarter of FY 2020. For full-year FY 2022, analysts expect EPS to increase 17.0% while revenue grows 13.7%. While slowing from the previous year, it would be the second-fastest pace of growth for annual earnings and revenue in at least six years.

Costco Key Stats
 Estimate for Q3 FY 2022 Q3 FY 2021Q3 FY 2020
Earnings Per Share ($)3.042.751.89
Revenue ($B)51.345.337.3
Comparable Sales Growth (%)11.120.64.8

Source: Visible Alpha

The Key Metric

As mentioned above, investors also will closely watch Costco’s comparable sales growth. The retailer, which operates on a membership-based model, defines comparable sales as net sales generated from its membership warehouses (including relocations, remodels, and expansions), as well as e-commerce websites that have been in operation for over one year. Growth in comparable sales is achieved through an increase in the shopping frequency from new and existing members as well as in the amount they spend per visit. When comparable sales are growing, it’s a sign that existing sales channels have not yet saturated the local market nor are those sales being cannibalized by the company’s newly-opened stores.

Costco’s annual comparable sales growth from FY 2017 through FY 2020 averaged about 6.9%. That growth accelerated significantly to 16.0% in FY 2021 from 7.7% in FY 2020. But the rate began to slow after growth peaked at 20.6% in Q3 FY 2021. Comparable sales growth decelerated to 15.5% YOY in the final quarter of FY 2021. Growth then slowed again to a pace of 15.0% in the first quarter of FY 2022 and again to 14.4% YOY in the second quarter. For Q3 FY 2022, analysts forecast that comparable sales will rise 11.1% YOY. For full-year FY 2022, analysts expect annual comparable sales to grow 12.0%. Even with Costco’s general trend of quarterly deceleration, it still would be the second-fastest pace of growth in at least six years.

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