[Note: Costco’s fiscal year ends in August]

Costco (NASDAQ:COST) is scheduled to report its fourth-quarter financial results on Thursday, September 22nd. We expect Costco to likely beat revenue and earnings expectations, driven by growth in comparable sales. Costco reports monthly sales updates, which means investors already know how Costco has dealt with inflation, supply chain problems, and other macroeconomic factors. The warehouse club operator held out as a retail chain that still posted double-digit net sales growth of 15% year-over-year in the fourth quarter β€” despite mounting global economic challenges. Additionally, the company’s comparable sales were up 10% year over year in the fourth quarter, excluding the effects of changes in gasoline and foreign currencies. However, Costco has had a great experience in the past two years, which shows how resilient its business model is even in tough economic times. It should also be noted that the monthly reports do not include any information on Costco’s profitability or membership revenue breakdown.

Our forecast is for Costco to have a valuation of $509 per share, roughly in line with the current market price. See the analysis of the interactive dashboard at Costco earnings preview: What do you expect in fiscal Q4? for more details.

(1) Revenue is expected to be slightly ahead of expectations

Trefis estimates COST revenue in FQ4 2022 at $72.5 billion, which is marginally higher than the consensus estimate. Costco reported a similar 11% increase in sales (ex-fuel) and revenue grew 16% year over year to $51.6 billion in the third quarter (the quarter ended May 8). Prices at Costco are very low and the membership fee-based model drives their high volumes. The retailer saw an increase in sales due to stockpiling at the start of the pandemic, and sales are now increasing as customers seek to combat inflation. In fact, Costco has seen sales rise faster than usual since the start of the pandemic. Compared to revenue growth in the third quarter of 16.3%, the company’s revenue has grown in the past decade at a compound annual growth rate of 8.2%.

With costs rising in many areas, such as finished products, raw materials, and shipping, Costco is striving to keep prices low. Given its size and scale, it can negotiate deals with suppliers to take some of the upside, and it sucks up some on its own. For the full year of 2022, we expect Costco’s revenue to grow 13% year-over-year to $221 billion.

(2) EPS likely to be marginally ahead of consensus estimates

EPS in FQ4 2022 from COST is expected to be $4.30 per Trefis analysis, slightly ahead of consensus estimates. In the third quarter, Costco earnings per share rose from $2.75 last year to $3.04 this year, despite supply chain pressures and pre-tax charges related to wage increases. However, Costco’s gross margin has fallen from 11.18% last year to 10.19% this year.

A membership fee increase this year isn’t likely due to high inflation, but it will happen sooner rather than later. Costco generally raises membership fees every five years, which was last raised in 2017. This should help the company increase its bottom line.

(3) Matching the stock price estimate to the current market price

According to our Costco valuation, with an EPS of about $13.25 and a P/E multiple of 38.4 times in fiscal 2022, that translates to a price of $509, which is in line with the current market price. Costco's ability to consistently generate higher sales, as well as turn them into profits, has impressed investors, and this has led to a higher price/yield than its peers even before the pandemic, when it was close to 30-fold.

It's helpful to see how her peers stack up. COST Peers shows how Costco's stock compares to its peers on important metrics. You'll find other useful comparisons of companies across industries in the Peer Comparison.

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