Foolish Forecast: Costco Could Crumble

On Thursday morning, we'll get the first-quarter 2008 results from warehouse retailer Costco Wholesale (Nasdaq: COST  ) . Go back and check out last quarter's joyful report, then come back to see whether you'd buy this one for a dollar.

What Fools say:

Here's how Costco's CAPS scoring rates against some of its peers and competitors:

	Market Cap (millions)	Trailing	CAPS Rating
Wal-Mart Stores (:WMT)	$199,520	16.3	**
Target (NYSE:TGT)	$46,195	16.3	****
Costco	$30,928	30.2	****
Best Buy (NYSE:BBY)	$22,290	18.9	***
BJ's Wholesale Club (NYSE:BJ)	$2,378	28.3	**

Data taken from Yahoo! Finance and Motley Fool CAPS on 12/11/2007.

Costco's stock looks rather pricey next to its rivals, but our CAPS players still like the stock, thanks to a unique high-end store concept and great management. On the downside, our bears see a recession coming, and they think that Costco is in for more hurtin' than most retailers.

What management says:
In the last earnings call, Chief Financial Officer Rick Galanti noted that continued comparable-stores growth around 4%-5% would place bottom-line results close to the top of the guidance range. Since Galanti also called the Thomson First Call earnings estimate of $0.59 per share "a shade high," it sounds like we should expect a result somewhere in the neighborhood of $0.55.

What management does:
These margins are slim, even for a bulk-oriented retailer. That's OK, as long as the net margin remains positive and revenue growth outruns inflation. Still, it's a bit disappointing to see earnings growth backing up into shrinkage territory.

Margins	5/06	9/06	11/06	2/07	5/07	9/07
Gross	12.4%	12.3%	12.3%	12.3%	12.2%	12.3%
Operating	2.8%	2.7%	2.7%	2.6%	2.5%	2.5%
Net	1.9%	1.8%	1.8%	1.7%	1.7%	1.7%
FCF/Revenue	1.1%	1%	1.2%	0.4%	1.3%	1.1%

Y-O-Y Growth	5/06	9/06	11/06	2/07	5/07	9/07
Revenue	10.9%	13.6%	13%	12.1%	11.9%	7.1%
Earnings	9.7%	3.8%	3.5%	0.1%	-3.3%	-1.9%

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:
The share price is up some 22% since the last earnings report, and it keeps pushing the all-time high limits higher. The reasons for this optimism aren't entirely clear -- after all, aren't we supposed to be headed for a severe consumer crash?

Perhaps high-end consumers are coming to the rescue here. If Tiffany (NYSE: TIF  ) and Nordstrom (NYSE: JWN  ) are doing all right, then Costco should remain the warehouse chain to beat. Then again, even the mighty N has taken its lumps lately. Costco needs to impress on Thursday in order to support its lofty valuation -- and I'm not sure that will happen.

Related Foolishness:

• The Best Retail Stock for 2007: Costco
• Dueling Fools: Costco
• Costco Keeps Bulking It Up