Image source: Costco Wholesale.

For years, Costco Wholesale (COST 1.02%) has been the darling of the big-box retail world, using its successful business model to drive growth and keep shoppers coming back. Yet last quarter, the retailer failed to meet investor expectations on the earnings front, and the stock has headed downward in response. On Wednesday, Costco will release its fiscal second-quarter financial report, and investors want to see further signs that the company can defy what has been a difficult holiday season for many of its retail peers and produce at least modestly higher revenue and earnings. Let's look more closely at what to expect from Costco Wholesale and whether it can bounce back from its rare earnings miss.

Stats on Costco

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$28.51 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Data source: Yahoo! Finance.

What's ahead for Costco earnings?
In recent months, analysts have been less optimistic about Costco earnings, cutting their fiscal second-quarter estimates by $0.04 per share and reducing their projections for the full fiscal year by $0.16 per share. The stock price has moved downward in concert, dropping 8% since mid-November.

Costco's fiscal fourth-quarter results back in December were a big cause for disappointment among investors in the retailer. Revenue climbed only 1.3% during the quarter, and net income actually fell 3%, which came as a shock to those expecting to see roughly a 4% to 5% rise in that figure. Comparable-store sales rose just 2% in the U.S. and fell 1% in its international business, in large part because of a combination of a strong dollar and falling gasoline prices worldwide. Perhaps most troubling was a slowdown in membership-fee growth to less than 2%, given the importance of membership-related revenue to Costco's overall business model.

Monthly sales figures have added fuel to the fire surrounding Costco's slowing growth. Even after accounting for the impact of gasoline-price deflation, Costco's U.S. comps in December rose only 4%. Adjusted comps growth slowed to just 1% in January, and even if you factor in additional headwinds from harsh winter weather in many parts of the country and a change in the timing of the Super Bowl, Costco's gain of about 3% was still subpar.

One factor that will get a lot of attention in the coming months is the ongoing transition to a new exclusive branded credit card. Most of the attention in the switch has gone to the outgoing partner American Express (AXP 1.27%), which was widely seen as the big loser in the move. Yet Costco also has some reputational risk if there are excessive problems in getting things moved over to the new issuer.

Another key aspect for Costco's growth will be its efforts to expand internationally. In 2016, Costco expects to open a total of 32 warehouse locations worldwide, with 12 to 14 coming to non-U.S. locations. A second warehouse in Spain and a brand-new presence in France highlight the need for Europe to start pulling its weight from a macroeconomic standpoint. If Costco can work the same magic in Europe and elsewhere around the world that has done so well in the U.S., then improving economies could give the big-box retailer a much-needed lift.

In the Costco earnings report, remember to factor in one-time factors like gasoline sales, but also look at other aspects of the retailer's fundamental performance. With shares well off their all-time highs, value investors should look closely to see if now might be the right time to buy into Costco stock.