Costco Wholesale Corporation (NASDAQ: COST) released its Q2 2022 earnings report on Thursday, March 3, 2022, in which it topped both earnings and sales estimates.
What to look for: The company runs a membership-based model, and it saw a deceleration in same-store sales. Its model defines comp sales as the net sales from membership warehouses plus e-commerce operations. Increased shopping frequency from members and amount spent per visit defines growth in comp sales, an important metric in the company’s revenue growth.
Earnings: Stockearning’s Estimated EPS for Q2 2022 was pegged at $2.73, but the company produced actual EPS of $2.92, a YoY improvement of 36.4%. The company’s net income was $1.3 billion compared to $951 million or $2.14 per share a year ago. In the first quarter, the company produced a 14.67% earnings surprise with an EPS of $2.97. Historical EPS performance shows that the company has, in the last 12 quarters, topped estimates 21 times (55%), matched twice (5%), and missed 13 times (36%).
Revenue: Costco’s revenue surpassed analyst expectations increasing 15.9% YoY with comp sales growth also exceeding expectation. Comp sales were up 14.4% quarter over quarter, a slight deceleration from the last quarter's growth rate. Revenue was $51.9 billion, beating analyst estimates of $51.3 billion. A year ago, the company had sales of $44.8 billion.
Stock movement: COST shares have gained 0.7% since the company released its last earnings release. Interestingly, following the earnings release, the company’s shares have been DOWN 27 times in the past 47 quarters. So, the historical price reaction suggests a 57% probability of the share price going DOWN following the earnings release. According to the Stockearning algorithm, the predicted volatility on the first day is +/-2%, while the predicted volatility on the seventh day is +/-3%.
What analysts are saying: Morgan Stanley analyst Simeon Gutman indicated that the company reported in an 8-K filing that RonVachris had been appointed as COO and President of the company and that current CEO and President Craig Jelenik will continue as CEO but relinquish the President title. Though this is not a formal declaration of a CEO transition plan, Gutman assures investors that one is in the works and that Vachris will "very probably" succeed incumbent CEO Jelinek. Gutman also believes the market was awaiting the last fee hike in June/July 2022. Although he is uncertain if the time would be approximately four years after the previous one, he still expects a subscription price increase "soon." Gutman has a Buy rating and a $560 price target on Costco shares.
Baird analyst Peter Benedict maintained a Buy rating in the stock and set a price target of $600 on the shares following January’s sales data. Benedict told investors in a research note that while the shares trade at an "elevated" price, the firm's traffic growth remains exceptional, its sector performance was once again wide ranging, and its member base has never been better.
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