Food and gas prices remain relatively high, and Costco Wholesale Corp. is expected to release its fiscal fourth-quarter results soon. This report will provide insights into how shoppers are reacting to these elevated prices, especially as the holiday-shopping season approaches.

While the overall increase in prices has led many customers to seek lower-cost options at discount stores, the impact of higher gas prices on inflation cannot be ignored. The reduction in oil production by Saudi Arabia and Russia has contributed to this rise in gas prices. Additionally, the resumption of student-loan payments has raised concerns about its impact on consumer spending.

Despite these challenges, analysts believe that Costco, with its diverse offering that includes food, gasoline, clothing, pharmacy, and optical services, remains an attractive option for consumers. UBS analyst Michael Lasser highlights that the executive membership penetration at Costco is likely strong as people aim to maximize their purchasing power. Moreover, the potential membership fee hike in the coming year could provide an additional boost.

What to Expect

Earnings: Analysts polled by FactSet and Estimize both expect Costco to report adjusted earnings per share of $4.79.

Revenue: FactSet forecasts revenue of $77.72 billion, while Estimize predicts sales of $77.74 billion.

Stock Movement: On Monday, Costco's shares experienced a slight decline of 0.4%. However, the stock has increased by an impressive 22.7% since the beginning of the year, outperforming the S&P 500, which rose 13.2% during the same period.

Analysts assess Costco's performance

Data analysis conducted by retail foot traffic analytics firm reveals that Costco experienced an uptick in customer visits during the summer, while other wholesale clubs and superstores saw a decline.

Shira Petrack, who writes for Placer, applauds Costco's emergence as a powerhouse for back-to-school shopping this year. Petrack examines Costco's visitor behavior in 2023 and compares it to 2022, highlighting the significant impact the company has made in the back-to-school market.

Brian Yarbrough, an analyst from Edward Jones, emphasizes that over 70% of Costco's operating profits come from membership fees. This business model allows Costco to operate profitably while keeping prices lower than many competitors. Notably, membership renewal rates stand at an impressive 89%.

Warehouse clubs like Costco have shown their resilience to economic fluctuations due to the high proportion of food sales and competitive prices, explains Yarbrough. Costco aims to provide value to its customers and foster long-term loyalty by deliberately narrowing its product profit margins.

However, UBS analyst Lasser predicts that the membership fees at Costco may soon increase. Historically, the company has revised its rates every 5-6 years, and the last adjustment occurred on March 2, 2017, becoming effective on June 1 of that year. Lasser suggests that next year is the most likely time for a new membership fee increase. Despite indications in the past year that Costco was not ready to raise prices due to consumer cost pressures, Lasser believes the timing may be opportune.

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