What to Watch When Costco Reports Earnings

We already have a good idea what to expect on Thursday, and things are looking up.

Danny Vena
Danny Vena
Dec 11, 2018 at 9:31AM
Consumer Goods

For all the talk of online sales supplanting brick-and-mortar stores, Costco's (NASDAQ:COST) physical stores seem to be bucking that trend. The company has been slowly adding to its digital strategy, while never losing focus on it bread-and-butter warehouse sales. That strategy has served Costco well, and its recent results bear that out.

The retailer will have another opportunity to impress investors this week, as Costco is scheduled to report the results of its fiscal 2019 first quarter after the market close on Thursday, Dec. 13. A review of the company's monthly sales reports give a peek at what to expect from the results. Let's take a look back at the previous quarter, and what we know so far about the current one to see what it says about the company's upcoming earnings release.

A Costco store with a packed parking lot and a "Now Open" sign.

Image source: Costco.

A look back

In early October, when the company reported its fourth-quarter and fiscal 2018 results, sales were robust, and Costco beat expectations on both the top and bottom line. Costco reported total revenue of $44.4 billion, up 5% year over year, even though the prior-year period had 17 weeks, compared to 16 weeks in the current period. Net income increased to $1.04 billion, up 13% year over year, resulting in earnings per share of $2.36, also up 13% compared to the prior-year period. 

There was a lot to like in the report, as comparable-store sales jumped 9.5% year over year and e-commerce sales increased 26.2% compared to the prior-year quarter. Excluding the impact of changes in gasoline prices and foreign exchange rates, comps increased 7.2% year over year and digital sales increased 26.3%. Additionally, membership renewal rates came in at 90.4%, which accelerated from 90.1% in the previous quarter.

There's more

Costco's recent monthly sales releases detailed more good news for investors, showing that these positive trends are continuing. When the company released its November sales report late last week, it showed that during the just-ended 13-week period, comparable-store sales grew 8.7% year over year and e-commerce sales jumped 34.5%. Excluding the impact of changes in gasoline prices, foreign exchange fluctuations, and an accounting change related to revenue recognition (ASC 606), comps increased by 7.5% year over year, and online sales grew 27.9% -- an acceleration from the previous quarter. Here's how comps and e-commerce transactions played out month by month (excluding the aforementioned impacts):   

Metric (year-over-year change)

Sep. 18

Oct. 18

Nov. 18

Comparable store sales

7.3%

6.6%

8.5%

E-commerce sales

25.7%

20%

34%

This illustrates that both comps and digital sales accelerated going into the end of the calendar year.  Combined, the results reveal that for the previous 13-week period, comps grew 7.5% year over year, and e-commerce sales increased 27.9% compared to the prior-year quarter. Costco said that during that same period, net sales were $37.57 billion, an increase of 10.2% year over year.

What the market expects

While savvy investors know not to get caught up in the short-term expectations of Wall Street, it can help provide perspective. For the fiscal 2019 first quarter, analysts' consensus estimates are calling for revenue of $34.76 billion, and earnings per share of $1.62.

Even in the wake of the monthly performance reports, Costco will no doubt add plenty of additional color when it reports earnings after the market close on Thursday, Dec. 13.