Costco (COST, Financial) will be reporting its first quarter 2018 earnings results on Thursday, Dec. 14, after the market close. With the company reporting above-par sales numbers in the last 12 weeks as comparable store sales increased by a whopping 10.5%, the odds are quite high for the company to beat Wall Street estimates for the quarter or, at the very least, report results in line with expectations.
The consensus EPS forecast for the first quarter is $1.35 with revenue expected to come in at $31.29 billion
Source: Costco November Sales Report
The biggest change Costco has witnessed over the last 12 months is that its online sales have been accelerating. E-commerce sales in the last three months have increased by 43.6% compared to the prior period, which was much higher than the 13% growth rate the company reported for fiscal 2017 and higher than the 17% the company reported during the second half of fiscal 2017.
It’s an interesting phenomenon for a company that focuses on members buying products in bulk, and investors do need to have a closer look at the company’s membership renewal rates during the quarter. Renewal rates dropped from 91% in 2015 to under 90% in 2017.
During the fourth quarter earnings call Costco’s CEO told analysts, “In terms of renewal rates, at year end, business members renewed at 94%, Gold Star members at 89.3%, these are numbers for the US and Canada combined, which is over 80% of our company and total US and Canada 90.0%, and worldwide, 87.2%, a slight tick down of a tenth or two from the last quarter.”
He stressed that renewal rates are fine and the drop was due to negative effects from the U.S. credit card conversion that the company undertook last year. He added that the company expects the effect to persist for few more quarters. As long as renewal rates hold at the current level, the market will respond positively to Costco’s first quarter earnings thanks to the strong e-commerce sales numbers the company reported in the last three months.
Costco has beaten Wall Street estimates for the top line as well as the bottom line for the last two consecutive quarters, which allowed the stock price to surge strongly during the period. Another beat should help maintain the current upward momentum. The only make-or-break information during the third quarter will be membership renewal rates, and all eyes will be focused on that.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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