Costco's (COST) Q3 Earnings Likely To Increase: Here's Why

Costco Wholesale Corporation (NASDAQ:COST) is slated to report third-quarter fiscal 2019 results on May 30. In the trailing four quarters, this Issaquah, WA-based company has outperformed the Zacks Consensus Estimate, with an average positive earnings surprise of 5.5%. In the last reported quarter, the company registered a positive earnings surprise of 20.4%. Let’s see how things are shaping up prior to this announcement.

The Zacks Consensus Estimate for the quarter under review is $1.83, suggesting growth of roughly 7.5% from the year-ago quarter. We observe that the Zacks Consensus Estimate has advanced by a couple of cents in the past 30 days. The Zacks Consensus Estimate for revenues currently stands at $34,880.1 million, indicating an improvement of roughly 7.8% from the year-ago reported figure.

Factors Influencing Costco’s Performance

Costco continues to be one of the dominant retail wholesalers based on the breadth and quality of merchandise offered. In fact, the company’s strategy to sell products at heavily discounted prices has helped it to remain on growth track. We believe that the company’s growth strategies, sturdy comparable sales (comps) performance and strong membership trends are likely to fuel the top line in the to-be-reported quarter. Notably, comps for the month of April rose 5.4% following an increase of 5.7% in March and 3.5% in February.

Additionally, a differentiated product range enables the company to provide an upscale shopping experience for its members, consequently resulting in market share gains and higher sales per square foot. We note that membership fees have increased 9.5% and 7.3% in the first and second quarter of fiscal 2019, respectively.

With the wave of digital transformation hitting the sector, Costco is fast adopting the omni-channel mantra to provide a seamless shopping experience, whether online or in-stores. It is steadily expanding e-commerce capabilities in the United States, Canada, the U.K., Mexico, Korea and Taiwan. E-commerce comparable sales surged 23.6% in the month of April 2019, following an increase of 20.6% and 24.2% in the months of March and February, respectively.

Certainly, the decent performance indicates that the company’s growth efforts have been fueling traffic across both the online and brick-and-mortar platforms. However, analysts pointed that any incremental investments or aggressive pricing strategy may weigh on margins. Moreover, rising SG&A expenses and stiff competition also remain concerns.

Model Predicts Higher Probability of Earnings Beat

Our proven model shows that Costco is likely to beat estimates this quarter. A stock needs to have both — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Costco has a Zacks Rank #3 and an Earnings ESP of +2.10%. This makes us reasonably confident of an earnings beat.

Other Stocks With Favorable Combination

Here are some other companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

Five Below (NASDAQ:FIVE) has an Earnings ESP of +3.23% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dollar General (NYSE:DG) has an Earnings ESP of +2.13% and a Zacks Rank #3.

G-III Apparel (NASDAQ:GIII) has an Earnings ESP of +5.35% and a Zacks Rank #3.

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