What to Expect From Costco Earnings

Retail

Published: December 9, 2014 2:05 pm

Costco Wholesale Corp. (NASDAQ: COST) will report its fiscal first-quarter earnings Wednesday before the market open. Thomson Reuters has consensus estimates of $1.09 in earnings per share and $26.92 billion in revenue. The first quarter from the previous year had $0.96 in earnings per share and $25.02 billion in revenue.

For the fourth quarter, the company noted that same-store sales rose 6% in the United States during the fourth quarter, 6% in the rest of the world and by a combined 6%, including sales of gasoline. Excluding gasoline sales and currency translation effects, U.S. same-store sales rose 6%, international sales rose 8% and combined sales rose 7%.

During this quarter, Costco said that it will open a “flagship” online store in China on the Tmall Global platform operated by Alibaba Group Holding Ltd. (NYSE: BABA). The member-only store will begin by selling food and health care products and some of its private-label Kirkland Signature goods to Chinese customers through the Tmall site costco.tmall.hk.

Costco is taking little risk here. Tmall offers a bonded warehouse that will keep logistics costs low and shorten delivery times to Chinese customers. The company will expand its offerings as and when demand warrants it. What the company will find out is how well its membership model works as an online-offering only.

One might guess that if the online store is a resounding success, Costco might decide to enter the brick-and-mortar market in China. Costco already operates 10 stores in Taiwan, 20 in Japan and 11 in Korea. The company operates 664 warehouse stores internationally and 469 in the United States, and it plans to open eight new stores by the end of the 2014 calendar year.

Deutsche Bank reiterated a Buy rating for Costco with a price target of $147, a day before earnings will be reported. Jeffries reiterated a Hold rating with a $130 price target on December 5.

For the first quarter, shares of Costco bounced off the 50-day moving average during the market sell-off in mid-October. Since that time, shares have remained above both the 50-day and 200-day moving averages.

Shares of Costco were up less than 1% at $142.69 with just over two hours left in Tuesday’s trading session. The consensus analyst price target is $140.04, and the 52-week trading range is $109.50 to $143.49. Costco has a market cap of $62 billion.

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