Guggenheim analyst John Heinbockel notes Costco’s fiscal fourth quarter ending August could. be a challenge.
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Costco Wholesale will report March sales data on Wednesday, and while the discounter is likely to turn in another strong showing, the fiscal fourth quarter remains a bigger challenge, notes Guggenheim.
Analyst John Heinbockel reiterated a Neutral rating on Costco (ticker: COST) Tuesday. As has been the case in nearly all of the past year, March same-store sales were impacted by a number of moving parts, but he’s estimating an 8% increase in “core” comparable sales.
While the food-and-sundries category is likely to fall year over year, given the pantry stocking of 2020, he predicts that will be offset by “robust recoveries in all the discretionary businesses.” He’s upbeat about the company’s e-commerce initiatives, improving fulfillment capabilities, and product assortment, and even some essential categories like fresh food are likely to remain strong.
A strong March would strengthen the case for Costco to delivery better-than-expected fiscal third-quarter earnings before interest, taxes, depreciation, and amortization. Heinbockel believes there’s upside to both Ebitda and earnings-per-share consensus expectations, helped by an increase in gasoline sales, margin expansion in categories such as fresh food, and ongoing cost leverage. (The company reported a mixed fiscal-second-quarter last month.
That said, he warns that the “fourth quarter is the bigger challenge.” That period ends Aug. 30. His sales estimates are above the analyst average, although that’s mostly due to the impact of gas sales and foreign exchange—two factors that the company strips out in its “core” sales figure. In addition, his Ebitda margin expectation of 4.25% is 30 basis points below the Street, given “daunting” comparisons.
Costco stock is down 0.1% to $360.44 in recent trading. The shares are down 4.2% year to date after rising nearly 19% in the past 12 months. That said they’ve rallied about 11% since Costco’s second-quarter report, despite an initial selloff that prompted an upgrade.
Write to Teresa Rivas at [email protected]
