What To Expect From Costco’s Earnings

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Costco (NASDAQ:COST) is scheduled to announce its fiscal first quarter results on Wednesday, December 7 after markets close. The company reported mixed Q4 2016 results, as its earnings beat consensus estimates but revenues missed. In Q4, the retailer’s overall revenue growth was driven by incremental revenues from new stores and growth in membership fees. It should be noted that the strengthening dollar had a significant negative impact on the company’s growth in the fourth quarter, and we expect this negative impact to continue in the first quarter as well.

In a recent press release, the company reported that its comparable store sales during the first quarter increased by 1%, including the negative impact of gasoline prices and currency effects. However, excluding these effects, the combined comparable sales increased by 2% driven by 1% growth in the U.S., a 5% rise in Canada and 3% growth in other international sales.

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Impact Of Strong Dollar

Consumers in international markets are welcoming Costco’s business model, as the company’s international revenues are growing at the same pace as its U.S. revenues. In fact, early signups in Asia and Australia have been very strong, which is encouraging Costco to continue its expansion in these regions. Moreover, most of Costco’s growth comes from its biggest international markets – Mexico and Canada – which is evident from its 5% comparable sales growth in Canada and 3% comparable sales growth in other international geographies in the first quarter.

However, the U.S. dollar has been witnessing strong growth over past year, which can be an issue for retailers that earn a significant portion of their revenues from foreign markets. The strengthening dollar is likely to hurt Costco, which generates almost 25% of its net revenues from markets other than the U.S. This could also weigh on its overall net sales growth in fiscal 2017.

Q1 Earnings Expectations

Costco did not publish any guidance for the upcoming earnings, but consensus estimates for the company’s first quarter of fiscal 2017 expects revenues of $28.3 billion and earnings of $1.19 per share. However, the company announced net sales of $27.47 billion for the first quarter in a recent press release, a 3% y-o-y increase. Going forward, if Costco’s membership fees remain around 2% of sales, we can expect the first quarter’s top line to fall just short of the consensus estimates.

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Have more questions about Costco? Please refer to our complete analysis for Costco

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