Costco Wholesale Corporation (COST), the nation’s largest club warehouse retailer will be reporting 1Q2016 earnings this afternoon after the closing bell. The Washington state based company has beaten EPS expectations in 3 of the last 4 quarters, but missed on revenues in each of those. Analysts are expecting year over year increases in both EPS and revenue. The Estimize consensus has a slightly more bullish view and is calling for EPS of $1.19 and revenue of $27.77 billion while Wall Street analysts are more conservative, calculating EPS of $1.17 and revenue of $27.64 billion. Costco prides itself on increasing membership annually, getting individuals in the door, and getting those individuals to spend more than they normally would.
Sales figures for November were recently made available to the public. While magnificent growth was not expected, the company managed to beat analyst estimates. Net sales increased by 3%, same-store sales grew 3% in US locations and fell 10% in Canada clubs and were down 3% internationally. Total company SSS came in flat, still better than expectations for -1%. Excluding gasoline price inflation and currency headwinds, comps grew 6%. However, analysts are predicting a decrease of 1% in comps this quarter, but growth of 3-5% in the next four, most likely as a result of high confidence in sales for the holiday season.
What Costco does better than most of its competitors is increase profits. With an already loyal customer base (90% member retention rate,) the firm was able to raise membership rates without an issue. The bulk of profits come from membership fees and the high retention rate suggests a more stable profit structure. Last quarter, club membership grew 2% and same stores sales grew 2%. Additionally, Costco plans to open one new warehouse before the calendar year end of 2015.
The E.coli Concern
According to the Center for Disease Control, Costco chicken salad, specifically the vegetable blend of celery and onions, has been the culprit of the E.coli outbreak that has affected Americans across several states. Over 150,000 products had to be recalled in response as thorough reviews were conducted into the retailer and its providers. Shares fell approximately 3% but have since risen amidst Costco’s reactions.
