Costco Wholesale is set to release its earnings report for the fourth fiscal quarter on Tuesday. Analysts believe that while the quarterly results might not significantly impact the stock, news about a potential increase in membership fees could have a substantial effect.
According to estimates from FactSet, Costco is expected to post adjusted earnings of $4.79 per share from $77.7 billion in sales. The company’s monthly sales updates and already reported numbers for 52 of the 53 weeks in its 2022-2023 fiscal year suggest that there will be few surprises in terms of revenue. Dean Rosenblum, an analyst at AB Bernstein, noted in a client note that any major revenue surprises are unlikely.
However, there is a possibility of a modest shortfall compared to expectations, as sales have slightly fallen short of consensus forecasts in the previous three fiscal quarters. This cautious consumer behavior has contributed to a deceleration in comparable-store sales over the past four quarters. Greg Melich, an analyst at Evercore ISI, described it as “a year of the lowest comps since 2017.” While comparable-store sales had risen by 14.9% in the quarter ending May 2022, this year’s gain was only 3.5% by May. FactSet projects a similar rise for this quarter.
In conclusion, analysts believe that Costco’s upcoming quarterly results may not have a significant impact on the stock. However, news regarding a potential increase in membership fees could prove to be a game-changer.
Costco Sales Improve, Potential Membership Fee Increase in Focus
According to retail analyst Melich, Costco’s sales improved throughout the summer after a “relatively concerning” start to the quarter. Data from Placer.ai indicates higher visits to Costco compared to the same period last year.
Melich rates the stock Outperform and has a $600 price target for Costco, ranking it among his top five picks.
Financial performance may not be the primary focus for the company, as analysts highlight potential updates on an upcoming increase in Costco’s annual membership fee. Wall Street believes an increase is long overdue.
Costco has historically raised fees approximately every five or six years. However, the company has refrained from doing so recently to avoid inconveniencing customers dealing with rising grocery costs. Presently, Costco charges $60 for a basic membership and $120 for an executive membership.
Analyst Rosenblum suggests that now, with food inflation easing somewhat, it may be the opportune time for Costco to plan a fee increase. This move could potentially benefit the company’s stock.
Costco shares have already experienced significant gains this year, outperforming the S&P 500 with a 22% increase.