May 19, 2022


Skillful Business Crafters

What to Look for from COST

Key Takeaways

  • Analysts estimate EPS of $3.59 vs. $3.13 in Q4 FY 2020.
  • Comparable sales are expected to grow YOY.
  • Revenue is expected to rise at a robust pace as the Delta variant of the coronavirus prompts customers to begin stockpiling home goods again.

Costco Wholesale Corp. (COST) is having one of its strongest fiscal years in recent history. The company’s robust sales growth has been fueled by customers sharply boosting their purchases of food and home goods as they have sheltered at home during the COVID-19 pandemic. Despite vaccinations of millions of Americans this year, the new threat of the fast-spreading Delta variant of the coronavirus has led to another round of stockpiling by customers. That prompted Costco in late August to reintroduce purchase limits on certain products, which it first started doing at the start of the pandemic.

Investors will be watching to see if Costco can continue its strong financial performance when the company reports earnings on Sept. 23, 2021 for Q4 FY 2021. Costco’s fiscal year (FY) ended in August. For the fourth quarter, analysts expect robust growth in both earnings per share (EPS) and revenue, albeit at a slower pace than in the third quarter.

Investors also will focus on Costco’s comparable sales growth, a key metric that gauges growth in sales generated by the retailer’s stores and digital channels that have been in operation for at least 12 months. Analysts expect quarterly comparable sales growth to decelerate from the previous quarter, but maintain a fast pace of growth compared to prior years.

Shares of Costco have outperformed the broader market over the past year. But that outperformance has come after lagging the market over a span of more than seven months from early January 2021 to early August 2021. The stock began to gain upward momentum around mid-June, before eventually pulling ahead of the market early last month. During the past 12 months, Costco’s shares have provided a total return of 37.7%, above the S&P 500’s total return of 32.7%.

Source: TradingView.

Costco Earnings History

Costco reported Q3 FY 2021 earnings that dramatically beat analysts’ consensus estimates. EPS rose 45.5% on revenue growth of 21.5% compared to the year-ago quarter. It was the fastest pace of growth for either metric in at least 18 quarters. But the company’s costs are also rising amid supply chain bottlenecks that have led to soaring container and shipping rates. Higher costs could put pressure on future profit margins.

Costco reported mixed results for Q2 FY 2021. EPS missed analysts’ expectations, rising a tepid 2.0% compared to the year-ago quarter. It was the slowest pace of growth since Q3 FY 2020. Revenue, however, rose 14.6% year over year (YOY), beating estimates. It marked the second fastest pace of revenue growth since the final quarter of FY 2017. Costco faced a number of supply-chain challenges stemming from shortages that included a dearth in supply of shipping containers, semiconductor chips, and aluminum.

Analysts expect earnings and revenue growth to decelerate in Q4 FY 2021 compared to the previous quarter. EPS is expected to rise 15.0% on revenue growth of 15.4% YOY. For full-year FY 2021, analysts expect EPS to increase 22.4% as revenue expands 16.9%, which would be the fastest pace of growth for either metric in at least six years.

Costco Key Stats
  Estimate for Q4 2021 (FY) Q4 2020 (FY) Q4 2019 (FY)
Earnings Per Share ($)  3.59 3.13 2.47
Revenue ($B) 61.6 53.4 47.5
Comparable Sales Growth (%) 13.5 11.4 5.1

Source: Visible Alpha

The Key Metric

As mentioned above, investors also will closely watch Costco’s comparable sales growth. The retailer, which operates on a membership-based model, defines comparable sales as net sales generated from its membership warehouses (including relocations, remodels, and expansions), as well as e-commerce websites that have been in operation for over one year. Growth in comparable sales is achieved through an increase in the shopping frequency from new and existing members as well as in the amount they spend per visit. When comparable sales are growing, it’s a sign that existing sales channels have not yet saturated the local market nor are those sales being cannibalized by the company’s newly-opened stores.

Costco’s annual comparable sales growth from FY 2017 through FY 2020 averaged about 6.9%. Annual comparable sales growth accelerated to 7.7% in FY 2020 from a pace of 6.1% in FY 2019. The acceleration was mostly driven by comparable sales in the fourth quarter, which expanded 11.4% YOY. The pace of growth picked up to 15.4% in Q1 FY 2021 before slowing to 13.0% in Q2. In Q3 FY 2021, comparable sales rose 20.6%, the fastest pace in at least 16 quarters. Analysts expect comparable sales to expand at a healthy 13.5% in Q4 FY 2021, despite slowing from the previous quarter. For full-year FY 2021, analysts forecast annual comparable sales to rise 15.3%, which would be the fastest pace in at least the past six years.