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Costco Stock Off Highs With Earnings Due, As Higher Costs Loom

Membership warehouse retail chain Costco (COST) reports fiscal fourth-quarter earnings on Thursday. Costco stock was about flat ahead of the report.

The company reports amid signs that it has held onto customers it drew last year during the height of coronavirus lockdown fears. But more recently, rising transportation and food costs have threatened margins.

Costco Earnings

Estimates: Wall Street expects Costco earnings per share of $3.58, up 2% from a year ago, according to FactSet. Revenue was seen climbing 15% to $61.4 billion. Same-store sales were expected to rise 12.4%.

Results: Due before the open on Thursday.

Costco Stock

Costco stock was up 0.2% in the stock market today. Shares have trended lower, toward their 50-day line, in recent days, after touching record highs earlier in the month.

Shares have a strong 92 Composite Rating. Their EPS Rating is 87.

Walmart (WMT) also rose 0.3% on Wednesday. BJ’s Wholesale Club (BJ) rose 2%.

Visits to Costco through June, July and August rose when compared to 2019, according to Placer.ai, a foot-traffic analytics firm. They rose for rival wholesale clubs BJ’s and Sam’s Club as well.

“The incredible surge in visits is a strong sign that (Costco) not only succeeded in having relative strength during the pandemic, but turned that short term strength into a foundation for long term success,” Ethan Chernofsky, the firm’s VP of marketing, wrote in a blog post this month.

‘Limited Earnings Upside?’

Early last year, customers stormed Costco and other big grocery outlets to load up on food and other items, fearing a long period of coronavirus-related quarantine. Costco ended fiscal 2020 with a net sales increase of 9%. Same-store sales rose 8% over that time.

For its third quarter, Costco reported a same-store sales jump of 15%, excluding the effects of gas-price and foreign-exchange fluctuations. That figure rose 12.9% in the second quarter.

However, Oppenheimer analysts, in a note this month, said they saw “limited earnings upside” for Costco stock. And they said shares haven’t done well after recent quarterly results.

“In addition, following the recent outperformance, we believe the robust and accelerating comp trends reported in recent months are now reflected in shares,” they said.

Costs Pose Challenge To Costco Stock

As with many other businesses, Costco is also operating in an environment where employers are starting to pay more to attract workers, as many prospective workers stay on the sidelines, helped by unemployment and stimulus cash, to weigh their career options.

Elsewhere, a supply chain left disjointed by the pandemic has pushed transportation and grocery costs higher. Ocean freight remains backed up on the major shipping lanes between the U.S. and Asia. Warehouses are packed. Truckers are harder to find.

Costco’s rivals have also noted those challenges. Robert Eddy, CEO of BJ’s Wholesale, said at a conference this month that the company was seeing supply disruptions in “many, many categories.”

“Think about categories like seasonal goods like patio sets that are made in China and shipped over here on a boat,” he said. “Think about the electronics businesses that might be assembled in the U.S. or at least in North America but many of the components come over from Asia. You’re seeing TVs and computers and things beyond allocation.”

“That stuff persists for a while I think,” Eddy said.

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