Brick-and-mortar retail is not the death trap it was once perceived to be. While there are still areas investors should stay away from, it’s a tough time ignore the long-term value that Costco (COST) still offers.
The nation’s largest warehouse retailer will report fourth quarter fiscal 2019 earnings results after the closing bell Thursday. Costco shares have surged more than 40% year to date, besting the 18% rise in the S&P 500 index and flat returns in the SPDR S&P Retail ETF (XRT). Notably, Costco shares have significantly outperformed Amazon (AMZN), which suggests that investors have come to realize that Costco’s strong fundamentals makes it well-insulated from the issues that affect other brick-and-mortar peers.
Costco’s earnings profile has made it a standout in retail over the years, with a business model that most analysts continue to praise. The stock has been rewarded on the back of a double-digit percentage rise in net revenue, while same-store sales is expected to surpass Street estimates. What’s more, Costco is still finding ways to grow its membership total and, at the same time, getting its club members to spend more. Analysts broadly expect the gains to continue after Thursday’s results.
For the quarter that ended August, analysts expect Costco to earn $2.54 per share on revenue of $47.61 billion. This compares to the year-ago quarter when earnings came to $2.36 per share on revenue of $44.41 billion. For the full year, earnings per share of $8.09 calls for 14% year-over-year growth, while full-year revenue of $152.79 billion would rise 7.9% year over year, topping last year’s mark of $141.58 billion.
Despite operating in a highly competitive and mature retail industry, Costco continues to attract tons of foot traffic. Third quarter revenue rose 7.4% to $34.78 billion, topping Street estimates of $34.52 billion, while adjusted EPS of $1.89 beat consensus of $1.83 per share. During the quarter, same-store-sales rose 5.5% in the U.S., while the company enjoyed a 7% increase in international markets. Just as impressive, Costco’s e-commerce business remains strong, rising 19.5%, topping expectations for a 17% increase.
The company is poised to surpass those figures on Thursday as evidenced by its recent current-quarter monthly sales figures. The company reported 5.1% increase in same-store-sales for both June and July. Notably, this is after the company adjusts for impacts from gasoline sales and foreign exchange issues. The e-commerce figure for June and July were just as strong, coming in at 20.8% and 23.8% year over year, respectively. Both figures exceed what Costco posted for May, which came in at just under 20% growth.
In other words, investors should expect another strong showing for the retail giant. But that’s already implied given what the stock has done to date. The question now is how Costco will guide. For the stock to keep rising, the company on Thursday must affirm the strength of its business by guiding confidently, particularly in terms of profit margins. Until anything meaningful changes, Costco’s business model is well-positioned to capture market share and grow profits for the foreseeable future.
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