Costco (NASDAQ: COST) is scheduled to report its fiscal fourth-quarter results on Thursday, September 23. We expect COST to likely beat the revenue and earnings expectations, driven by growth in comparable sales. The warehouse club operator has been firing on all cylinders during the challenges of the pandemic. In fact, the company’s sales grew 18% in the first three quarters of fiscal 2021 – despite tough comparisons from the prior year when consumers had fewer options to spend their money. This was largely due to a jump in inflation and a short-term surge in retail spending. In early September, Costco already put out that it ended this fiscal year (ended Aug) on a high note as it saw net sales rise 17% to $61.4 billion during the fourth quarter. The company’s comparable sales grew 9% excluding the impact of gasoline prices and foreign exchange during this period. All this suggesting that the company should be able to sustain this growth momentum going forward, as well. In the upcoming results, we expect the company’s new member additions and membership fee income to also show robust growth as shoppers continued to spend freely through late August.
Our forecast indicates that Costco’s valuation is $456 a share, which is slightly higher than the current market price of roughly $452. Look at our interactive dashboard analysis on Costco‘s pre-earnings: What To Expect in Fiscal Q4? for more details.
(1) Revenues expected to be ahead of consensus estimates
Trefis estimates COST’s FQ4 2021 revenues to be $62.6 Bil, 2% higher than the consensus estimate of $61.2 Bil. It should be noted that the company’s overall revenue is calculated by adding the net sales (already reported) and membership fees. In fiscal 2021 so far, the retailer’s gross margin improved by approximately 0.4 percentage points, driven by the tailwinds of higher labor productivity and lower spoilage for fresh foods (due to higher sales). As far as e-commerce goes, Covid-19 has given Costco a chance to build out its own business. E-commerce revenue grew 50% in fiscal 2020 and climbed another 43% through FY 2021. Costco has the lowest markup in the retail industry which creates an extremely compelling value for members. The company’s member renewal rate has been hovering around all-time highs of 91% so far in fiscal 2021. And, another strong indication here in the Q4 results will imply a healthy momentum heading into the crucial holiday season.
2) EPS likely to be ahead of consensus estimates
COST’s FQ4 2021 earnings per share (EPS) is expected to be $3.62 per Trefis analysis, 2% ahead of the consensus estimate of $3.55. In the first 36 weeks of FY 2021, the retailer’s operating income surged 26% y-o-y, despite higher selling, general, and administrative expenses. Also, Costco’s earnings per share grew 28% y-o-y to $7.51.
For the full year, we expect Costco’s net margin to grow slightly to 2.4% in fiscal 2021. This coupled with a 17% y-o-y growth in Costco’s revenues, could lead to a rise of $800 million y-o-y in net income to $4.8 billion in 2021. All this, resulting in a possible EPS increase from $9.01 in FY 2020 to around $10.74 in FY 2021.
(3) Stock price estimate higher than the current market price
Going by our Costco’s valuation, with an EPS estimate of around $10.75 and P/E multiple of 42.5x in fiscal 2021, this translates into a price of $456, which is marginally higher than the current market price of around $452.
It is helpful to see how Costco’s peers stack up. COST Stock Comparison With Peers shows how it compares against other peers on metrics that matter.