Costco Wholesale Corporation (NASDAQ:COST) plans to release its operating results for the first quarter (12 weeks) of fiscal 2014 ended November 24, 2013, on December 11, 2013. A conference call to discuss these results is scheduled for 8:00 a.m. (PT) that day and will be available via webcast on www.costco.com.
Wall Street anticipates that the discount wholesaler will earn $1.02 per share for the quarter. iStock expects COST to miss Wall Street's consensus number. The iEstimate is $1.01.
Costco currently operates 648 warehouses, including 461 in the United States and Puerto Rico, 87 in Canada, 33 in Mexico, 25 in the United Kingdom, 18 in Japan, 10 in Taiwan, nine in Korea and five in Australia. Costco also operates electronic commerce web sites in the U.S., Canada, the United Kingdom and Mexico.
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Since Costco pre-releases sales figures, we'll work backwards to see where revenue and EPS are likely to come in on Wednesday Morning.
On December 5, 2013, management announced, "For the twelve-week first quarter ended November 24, 2013, the Company reported net sales of $24.47 billion, an increase of five percent compared to $23.20 billion in the twelve-week first quarter of fiscal year 2013 ended November 25, 2012."
The announcement leaves out membership fees. The warehouse club business model is based on ultra-low mark-up on products, with the majority of profits generated from membership fees charged to customers. Costco derives more than 70 percent of operating income from membership fees received from its 37 million plus paid-up members.
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Investors will focus on new membership signups, membership renewal rates and rise in number of executive members. Membership metrics are critical because as long as people keep paying for annual membership, they're going to shop at Costco.
We project membership fees to be in the neighborhood of $720 million, which puts total revenue at $25.19 billion. The Street's consensus revenue estimate is $25.34 billion with a range of $25 billion to $26.66.
If net margin remains the same and our revenue estimate are close to correct, then EPS could come in at $0.99, which would mean a miss of $0.03.
It would not be too surprising if the NASDAQ 100 member falls short of the top and bottom lines consensus estimates as it's been a tough quarter for retailers. Plus, cost missed the mark last quarter; however, the stock price was essentially unchanged during the three-days surrounding the quarterly checkup.
Bearish EPS surprises have been a rarity for the wholesale-giant. Management has produced only four less than expected results in the last 16 quarters but never in the December announcement. So, a miss tomorrow would be a first.
Despite a potential miss, Costco continues to provide one of the most consistent traffic in the retail space and its top-line performance was one of the best in retail during a challenging period with strength domestically and internationally.
The company's solid traffic and membership renewal rates are unique within a space wrought with uncertainty of late. The uniqueness could help Costco post a solid quarterly print. However, investors could focus on forex fluctuations, volatile gas prices, gross profit and SG&A margins.
The Street will look for company's international expansion plans. It expects to open 36 new warehouse locations during the current fiscal year, and half of them would be in international markets.
In addition, the retailer's online business would be a key focus. Costco's online sales represent only 2 percent of its overall revenues, suggesting that the! re is a e! normous room for improvement given the optimistic outlook for the U.S. online retail industry. During the last two quarters of fiscal 2013, the company's e-commerce revenues rose by 20 percent and 15 percent, respectively.
Overall: Earnings announcements have been tough on many retailers this quarter. Not because EPS have fallen short of Wall Street's expectations, but because forward guidance has been soft and lower than expected.
If Costco Wholesale Corporation (NASDAQ:COST) misses, but provides in-line guidance, it could be enough to ward of sellers.
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