Costco Q3 Earnings Preview: Positive Comp Sales Likely To Boost Top Line

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Costco (NASDAQ:COST) is scheduled to announce its fiscal third quarter results on Thursday, May 25. The company has had a relatively disappointing first half of fiscal 2017 (fiscal year ends August 2017) so far, with the company missing earnings per share and revenue estimates in both quarters. However, the company’s overall revenue increased 4.5% year-over-year (y-o-y) to $58 billion in the first six months of fiscal 2017, driven by incremental revenues from new stores, growth in membership fees and a 2% increase in comparable sales, partially offset by price deflation. During the same period, Costco’s membership revenue grew 6% y-o-y to $1.26 billion, due to sign-ups at existing and new warehouses and increased penetration of the company’s higher-fee Executive Membership program. Currently, Costco’s member renewal rates are 90% in the U.S. and Canada and 88% worldwide. In the same period, the company reported net earnings of $2.41 per share, up 4% y-o-y.

In a recent press release, Costco reported that its comparable store sales during April increased by 3%, including the negative impact of gasoline prices and currency effects, largely driven by strong U.S. comparable sales growth of 4%. Excluding the gasoline and currency fluctuations, the combined comparable sales increased by 3%, driven by 3% growth in the U.S., a 3% rise in Canada and 5% growth in other international sales.

costpeq3172Going forward, we expect the retailer to beat market estimates in the third quarter, primarily due to positive comparable sales of February, March and April in the U.S. Additionally, the company also announced a special dividend of $ 7.00 per share to shareholders, while increasing its regular quarterly dividend to 50 cents per share. [1] The company is funding the dividends through its strong balance sheet, cash flows and further borrowings, which highlights the company’s commitment to rewarding shareholders.costpeq3173Per consensus estimates, the company is expected to report third quarter revenues of $28.52 billion and earnings of $1.31 per share.

costpeq3171Have more questions about Costco? Please refer to our complete analysis for Costco

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Notes:
  1. Costco Press Release []