Costco Near Buy Point With Earnings Due, Looking To Defy Downturn

Wholesaler Costco (COST) reports fourth-quarter results late Tuesday amid a wider downturn for retailers and mixed performance for discounters. Costco stock is trading in a base near a buy point. Shares were little changed Monday.

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Costco reported that net sales rose 5% year over year to $18.42 billion for the month of August, according to its monthly sales update on Aug. 30.

Total comparable sales, excluding the impact from gas prices, climbed 4.1% for the four-week period. U.S. same-store sales rose 3.2%, while comparable sales in Canada increased 7.5%. Other international comparable sales were 5.4% higher for the month. E-commerce sales eased 2.2% vs. August 2022.

For the first 52 weeks of its 53-week fiscal year, Costco reported net sales of $232.95 billion, up 4.6% from the prior year. During the period, total comparable sales (excluding gasoline price impacts) increased 5.2%. U.S. comparable sales rose 4.2%, while same-store sales in Canada grew 8%. Other international comparable sales increased 7.9%. But comparable e-commerce sales fell 4.9% during its first 52 weeks.

Costco has partnered with Sesame, an online health care marketplace, to offer price discounts for services including primary health care, mental health visits and pharmacy visits, Bloomberg reported Monday. Costco members will be eligible for $29 online primary care visits, $79 mental health visits and 10% discounts for other services.

Earnings

Costco’s earnings growth has accelerated in the past two quarters, with double-digit gains. But revenue gains have slowed for the last four quarters.

Analysts polled by FactSet expect Cisco earnings for the August-ending quarter to increase 14% to $4.79 per share. Revenue is seen climbing 7.8% to $77.72 billion, picking up from Q3’s 2% gain.

For the 2023 fiscal year, analysts project 9.1% earnings growth to $14.34 per share on 2.6% revenue growth to $232.95 billion.

Retailer Performance Mixed

The overall U.S. retail sector is still a “vast market set for further growth,” HSBC wrote in a Friday note. The coronavirus pandemic accelerated the retail shift to digital/online channels. But well-developed methods of drawing customers to purchase goods online after visiting a store — what the analyst calls offline-to-online approaches — appear key to building and maintaining market share.

HSBC initiated coverage of Costco, Target (TGT), Home Depot (HD) and Lowe’s (LOW) with hold ratings. The bank has a $600 price target for Costco stock.

HSBC said Walmart (WMT) is its preferred name in retail, while Dollar General (DG) is on the bottom of the list. Dollar General lacks a digital strategy and has greater exposure to consumer spending on discretionary goods, a metric showing signs of slowing, according to HSBC.

Most retailer stocks are struggling after a wave of slashed outlooks and warnings of slower consumer spending in August. Target stock fell 11% over the past month and is down nearly 15% for the quarter, MarketSmith data shows. Discount retailers Five Below (FIVE), Dollar Tree (DLTR) and Dollar General tumbled 25% to 36% for the quarter.

Walmart, off-price retailer TJX (TJX), Costco rival BJ’s Wholesale Club (BJ) and close-out chain Ollie’s Bargain Outlet (OLLI) are still doing well. WMT stock climbed about 3% over the past quarter while TJX rose 5%. BJ stock jumped 16% during the period while OLLI shares spiked nearly 31%.

Costco Stock

COST shares ticked up to 558.62 Monday ahead of results.

Costco stock is trading in a flat base with a 571.16 buy point. The buy zone, which stretches 5% beyond the buy point, would extend to 599.71. Investors could use the Sept. 20 high of 569.22 as an early entry.

Shares are hovering above their 21-day exponential moving average and 50-day line after sliding below their 10-day line last week.

The 7% flat base formed next to a longer consolidation.

COST stock is still up 3.4% for the quarter despite the broader retail downturn. Costco has rallied nearly 22% so far this year.

You can follow Harrison Miller for more stock news and updates on X/Twitter @IBD_Harrison

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