Costco Wholesale Corporation Earnings: Can the Retailer Still Grow?

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On Thursday, Costco Wholesale will release its quarterly report, and investors haven't been certain how to deal with changing conditions in the retail market. Yet even though Wal-Mart , Target , and many other big retailers have had trouble with winter weather and other factors, Costco hopes to buck the trend by posting solid growth this quarter.

Costco's success has been in luring new members to its doors and then keeping them with a sky-high retention rate. By charging an annual membership fee that essentially represents pure profit, Costco Wholesale is able to offer even lower prices on the goods it sells, catering to its bargain-conscious customer base and encouraging high-volume sales. With the economic recovery continuing, can Costco keep growing even faster? Let's take an early look at what's been happening with Costco Wholesale over the past quarter and what we're likely to see in its report.

Source: Costco Wholesale.

Stats on Costco Wholesale

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$25.7 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Can Costco earnings break their losing streak?
Analysts have cut their views on Costco earnings in recent months, reducing this quarter's estimates by a nickel per share and full-year fiscal 2014 and 2015 projections by about 4% to 5%. The stock hasn't done much lately, falling less than 1% since late February.

Costco Wholesale's fiscal second-quarter earnings report back in March raised some true concerns about the company's past and future prospects. Earnings fell 15%, and earnings per share missed estimates for the third consecutive quarter. A 6% rise in revenue was also less than investors had expected to see, and even though same-store sales rose 3% on a 4% jump in membership-fee revenue, Costco pointed to the holiday-season portion of the quarter as the source of greatest weakness for the company's net income, confirming the troubles that Wal-Mart and Target reported in a promotion-rich environment. Still, any positive comps were better than what Wal-Mart and Target gave investors in their holiday quarters.

Moreover, more recently, Costco Wholesale has seen its comps come up substantially. In both March and April, same-store sales jumped 5%, even including poor comparisons due to gasoline prices and foreign-exchange rates. The recent figures point to the idea that the winter quarter was an aberration and that weather-beaten customers came out in full force once spring hit.

Having largely defeated Wal-Mart and Target, even with Wal-Mart's Sam's Clubs, the key question Costco Wholesale has to answer is how it can stand up to online retail. Both e-commerce behemoths and up-and-coming players are looking to threaten Costco by tapping into the same household demand for bulk purchases. By offering free delivery, online retailers hope to offer convenience at similar prices, making the Costco membership proposition less valuable. So far, though, the difference is that online retailers have had more difficulty sustaining profitability, while Costco succeeds in making money on a consistent basis and returning it to shareholders in the form of dividends.

Arguably, Costco's biggest asset is its employee base, which it has cultivated with much higher pay than Target and Wal-Mart typically offer. With sky-high retention rates, Costco Wholesale avoids having to deal with the costs of employee turnover to the same extent as its rivals, and it also builds a positive reputation in the communities Costco serves.

In the Costco earnings report, watch to see whether the company can reverse its trend of missing earnings estimates and return to a more stable growth trajectory. If Costco Wholesale avoids the same troubles that have hit its retail peers, then its share price could easily recover from its recent slump.

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The article Costco Wholesale Corporation Earnings: Can the Retailer Still Grow? originally appeared on

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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