Thursday morning, warehouse retailer Costco (NASDAQ:COST) reports results for the second quarter of its fiscal 2007. Get in line for a price check on this stand-up corporate citizen.

What analysts say:

  • Buy, sell, or waffle? Twenty-five analysts follow Costco today. Six are telling us to buy; three want us to sell; and the other 16 prefer holding for now.
  • Revenues. $15.6 billion would satisfy the average analyst, representing a 10.9% boost over last year's results.
  • Earnings. The consensus forecast expects roughly $0.66 per share, up from $0.62 a year ago. Management expects to land in the $0.62 to $0.66 range, before a $0.15-per-share expense to protect employees from tax expenses on their stock options.

What management says:
CEO Jim Sinegal recently joined the Business for a Fair Minimum Wage organization, which lobbies for higher minimum wages. Yeah, the name is a bit of a giveaway. His company wouldn't be directly affected by such a move, because its lowest-paid employees now make about $11 an hour, Sinegal told the Washington Post.

"In my view, some of these industries that pay minimum wage are constantly turning their people," he elaborated. "They spend more on turnover than they would in paying the additional wages."

What management does:
 Steady as she goes, captain. At least, that's the story if you're just looking at the margin rundown. There's a slight downward trend, but it's hard to get too worked up over ten or twenty basis points, even for a low-margin retailer like Costco.

But the divergent growth trends in revenues and income raise a warning flag for me. If the company meets expectations, which trend toward the upper range of its own guidance, the earnings growth slide should happily reverse itself.

Margins

8/2005

11/2005

2/2006

5/2006

9/2006

11/2006

Gross

12.5%

12.5%

12.4%

12.4%

12.3%

12.3%

Operating

3.0%

3.0%

3.0%

3.0%

2.9%

2.9%

Net

2.0%

2.0%

1.9%

1.9%

1.8%

1.8%

FCF/Revenue

1.5%

1.5%

1.6%

1.1%

1.0%

1.2%


YOY Growth

8/2005

11/2005

2/2006

5/2006

9/2006

11/2006

Revenue

10.1%

10.5%

10.8%

10.9%

13.6%

13.0%

Earnings

20.5%

18.6%

8.3%

9.7%

3.8%

3.5%
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.

What CAPS says:
In our Motley Fool CAPS investor universe, Costco is a five-star stock, based on the insights of more than 840 players like you and me. CAPS also tells me that if you like Costco, you might also want to consider Toyota (NYSE:TM) and Johnson & Johnson (NYSE:JNJ).

One Fool says:
In many ways, Costco is the anti-Wal-Mart (NYSE:WMT). Where the Bentonville giant ruthlessly pushes down costs and in-store prices any way it can, Costco lavishes its employees with above-average wages and great benefits, and makes up the difference with higher-priced and often higher-quality merchandise for a more upscale clientele. It's a philosophy that runs counter to today's prevailing management philosophies, but it's also serving the Seattle-area retailer very well. You know you're doing something right when you get consistent double-digit sales growth without spending a nickel on marketing. Happy employees make for happy customers, and the resulting word of mouth is a powerful -- and free -- marketing tool.

Costco Wholesale is a Motley Fool Stock Advisor pick; Wal-Mart is an Inside Value recommendation; and Johnson & Johnson is an Income Investor selection. Take all three newsletters for a free 30-day spin around your portfolio.

Fool contributor Anders Bylund holds no position in any of the companies discussed here, but his wife drives a Toyota. You can check out Anders' holdings if you like, and Foolish disclosure is great at any price.