Membership warehouse retailer Costco (NASDAQ:COST) will report third-quarter 2007 financial results on Thursday, May 31. Will its shopping cart be filled with good news?

What analysts say:

  • Buy, sell, or waffle? Of the two dozen analysts covering the big-box discount retailer, 15 think you should do nothing right now, seven recommend a buy, and two say "sell."
  • Revenue. Sales are expected to grow nearly 11% to $14.7 billion.
  • Earnings. Profits are expected to enjoy an equally strong quarter, rising 14% to $0.56 per share.

What management says:
Amid rising store counts, membership numbers, and annual member fees, Costco has also been enjoying steadily growing same-store sales. CFO Richard Galanti noted last quarter that the retailer would begin enjoying the results of the $5 increase in membership fees instituted in the U.S. and Canada last summer. The hike hasn't slowed the pace of membership growth, which stood at 26.7 million members at the end of last quarter, nor should it affect membership growth this quarter. With an 87% renewal rate -- I just renewed my membership recently -- churn is low.

What management does:
While we can admire the seeming rigidity with which Costco can post consistent margins, we might also rightly wonder about those margins' degradation, however glacially slow it is. Returns of merchandise have affected margin results recently, leading the retailer to change its return policy on electronics from six months on some products to 90 days across the board. Costco was also hurt by weaker sales and increased spoilage in its fresh foods area.

Margin

02/06

05/06

09/06

11/06

02/07

Gross

12.4%

12.4%

12.3%

12.3%

12.3%

Operating

3%

3%

2.9%

2.9%

2.8%

Net

1.9%

1.9%

1.8%

1.8%

1.7%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
It's tough to argue with a company that can consistently churn out steady revenue growth, 10% or more earnings-per-share growth, and steady increases in comps, all while faced with stiff and widespread competition. Any of the big-box retailers -- Wal-Mart (NYSE:WMT), Sam's Club, Target (NYSE:TGT), or Best Buy (NYSE:BBY) -- could have had a material impact on results, particularly at the low-price end of the spectrum, but they haven't. Still, Costco has increased its reserves for returns after more closely examining how its merchandise moved, and realizing that it wasn't setting enough aside.

Costco's steady management has kept its financial statements clean and generated regular improvements to cash flow. Tom Gardner updated subscribers on the prospects for this Motley Fool Stock Advisor recommendation just last week; a free trial subscription will let you see what he thinks about Costco now.

Related Foolishness:

Costco has earned a four-star rating from Motley Fool CAPS, the new investor intelligence community. You can add your voice to the new stock rating service by joining today. It's free!

Costco and Best Buy are Motley Fool Stock Advisor selections. Wal-Mart is a recommendation of Motley Fool Inside Value. Try any of the investment services we offer, absolutely free.

Fool contributor Rich Duprey owns shares of Wal-Mart, but holds no financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.