Costco’s most recent earnings were mixed, which sent shares lower in March.
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Costco Wholesale will report earnings on Thursday along with a host of other retailers, including Best Buy and Gap. But the discounter’s quarter may be one of the most telling as investors gauge how the biggest players transition to a post-pandemic world.
Costco (ticker: COST) has a very high bar to clear since several other retailers—Target (TGT) and Walmart (WMT) are just two examples—have already delivered over-the-top numbers.
But the real pressure to beat expectations is coming from investors, whose gauges of success are government statistics: The latest round of stimulus checks boosted retail sales to a pandemic-era high in March, and consumer confidence reached its highest levels in 14 months in April.
As Barron’s noted last week, those factors were likely to bolster same-store sales for Walmart, offering one of the few catalysts to break its recent post-earnings cycle of slumps. And that metric did sail past difficult comparisons, and along with upbeat guidance, helped the industry leader close higher after earnings for the first time in several quarters.
Walmart wasn’t the only big-box player to wow the market, however. Target notched blockbuster results last week, too, one of the biggest reports in a busy week.
Both companies noted that while consumers were understandably less focused on stocking up on essentials than the first quarter of 2020, when Covid-19 restrictions were being put in place, they were more than willing to shift their spending into other more discretionary categories. Apparel was a big winner—perhaps part of the coming fashion shift Barron’s has argued will bolster clothing sellers—but so was the home goods category. Stellar earnings from Home Depot (HD) highlighted that even with more options opening up, shopping still holds appeal, even in categories that thrived throughout 2020.
All of that bodes well for Costco. Like Walmart and Target, it was a big pandemic winner—its focus on value resonated with consumers throughout the crisis, first for essentials and later for discretionary items. That strength led to consecutive months of robust same-store sales, even though that hasn’t always helped the stock.
That said, the company’s most recent earnings were mixed, which sent shares lower in March, and while the stock is still an analyst favorite, it has given up some of its pandemic gains. The shares gained more than 27% in the past 12 months, but have crept up just around 2% since the start of the year.
Analysts are looking for Costco to earn $2.38 a share on revenue of $44.71 billion. That compares to EPS of $2.14, which came in below consensus estimates, and revenue of $44.77 billion in the prior quarter.
Stimulus checks, an improving labor market, and consumer confidence were always going to bolster hopes for Costco’s earnings. Upbeat management commentary last week from Target and Walmart—the latter noting that its warehouse division Sam’s Club reached a new membership record and grew same-store sales 2.7%—will likely have investors more optimistic about the report.
Those reports, and the stocks’ subsequent moves, show the market is willing to reward good results, at least in this corner of retail, so Costco could see as similar bump. But the shares could slide again if it doesn’t make the cut.
Write to Teresa Rivas at [email protected]
