Costco Wholesale is set to announce its earnings for the fourth fiscal quarter, covering the period from June to August. While analysts predict that the results themselves might not significantly affect the company’s stock, news of a possible increase in membership fees could potentially have a notable impact.
According to estimates from FactSet, analysts expect Costco to report adjusted earnings of $4.79 per share from $77.7 billion in sales. The company regularly provides monthly sales updates and has already disclosed numbers for 52 out of 53 weeks in its 2022-2023 fiscal year. This transparency reduces the likelihood of any major surprises in terms of revenue, as expressed by AB Bernstein analyst Dean Rosenblum in a client note.
However, there is a possibility of a modest shortfall compared to expectations. Over the past three fiscal quarters, Costco’s sales have fallen slightly below consensus forecasts, reflecting consumer caution. As shoppers have become increasingly cautious, comparable-store sales have also experienced a decline, with a steady deceleration throughout the past four quarters. Greg Melich, an analyst from Evercore ISI, referred to this trend as “a year of the lowest comps since 2017.” Although comparable-store sales rose by 14.9% in the quarter ending May 2022, this figure decreased to only 3.5% by the same month this year. FactSet predicts a similar rise for this current quarter.
Costco’s Strong Performance and Potential Fee Increase
The latest reports suggest that Costco’s sales have shown significant improvement throughout the summer, putting the company on track for a solid financial report. Visits to Costco have exceeded the numbers from the same period last year, indicating a positive trend in customer engagement.
Analysts like Melich have given Costco a high rating, with an Outperform designation and a price target of $600. In fact, Costco is among Melich’s top five picks, reinforcing the confidence in the company’s future growth.
While financial performance is crucial, there is another pressing matter that might overshadow it. Many in the business world are eager to find out if Costco plans to increase its annual membership fee, a move that Wall Street believes is long overdue.
Historically, Costco has raised its fees approximately every five to six years. The last increase occurred in 2017. However, the company has been cautious about further hikes to avoid burdening customers already grappling with rising grocery costs. At present, a basic membership costs $60, while an executive membership carries a fee of $120.
According to Rosenblum, now might be the opportune moment for Costco to consider a fee increase since food inflation has subsided. By capitalizing on this lull, Costco could potentially drive further gains in its stock.
If a fee increase were to occur, market experts like Melich and Rosenblum predict that it would likely have a positive impact on the stock’s performance. In fact, Costco’s shares have already experienced substantial growth this year, outpacing the performance of the S&P 500 by 9 percentage points.
For more information about Costco’s current situation and potential developments, please contact Sabrina Escobar.
