What to Expect From Costco’s Q2
Costco (NASDAQ:COST) is scheduled to announce its fiscal second quarter results on Wednesday, March 7. The company reported a solid Q1, as both its earnings per share and revenue estimates came in ahead of market expectations. In Q2, we expect the retailer to benefit from the continued growth momentum – confirming that Costco is still able to grow traffic at its brick and mortar warehouses despite stiff competition in the grocery sector, and growing overlap with Amazon (NASDAQ: AMZN) since it purchased Whole Foods. We have created an Interactive Dashboard which outlines our forecasts for the company and our expectations for its Q2 earnings. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation.
Growth In Comparable Sales, Membership Fees
Costco’s overall revenue increased 13% year-over-year (y-o-y) to around $32 billion in the first quarter, driven by incremental revenues from new stores, growth in membership fees and an 11% increase in comparable sales. During the same period, Costco’s membership revenue grew 10% y-o-y to $692 million, due to new sign-ups 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 87.2% worldwide. In addition, the retailer benefited from pre-Thanksgiving and Black Friday holiday weekend sales in the first quarter. Going forward, we expect the retailer to post strong numbers in the second quarter as well, largely due to strong December results. The company’s December performance was its best comparable sales performance for the year, although it benefited from one additional shopping day, which boosted its results by approximately 2.5%.
Costco’s subsequent monthly sales figures also confirm the retailer’s growth in its top line, driven by a weaker U.S. dollar and higher gasoline prices. As a result, Costco was able to attract comparable sales of 14% in December and 8% in January. We expect the February comparable sales to be roughly in line with the January results. In fact, the company also managed to grow its comparable sales excluding these factors – 6% in December and 5% in January. The company’s organic performance has been keeping pace with the U.S. retail industry, primarily due to its business model.
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