Costco Wholesale Corp
As investors eagerly anticipate Costco Wholesale's earnings print, the focal points revolve around the customary membership fee hike, typically occurring every six years, and the potential announcement of a special dividend.
Wall Street expects Costco to report $3.41 in EPS and $57.7 billion in revenue.
Costco's Business Is Not Margins Driven
Costco's appeal lies in its robust business model, emphasizing membership fees and high renewal rates.
Costco doesn't merely position itself as a retail seller; instead, it views its role as a buyer acting on behalf of its members. Operating with thin profit margins on merchandise, Costco relies heavily on its membership fees for sustained profitability.
The company's unique approach shields it from the volatility associated with declines in sales that might trouble other retailers. The key metric, according to the recently published 2023 Annual Report, is Costco's exceptional renewal rates-92.7% in the U.S. and Canada and 90.4% globally.
Understanding Costco's resilience requires acknowledging that sales growth and margin improvement aren't the primary metrics to gauge its performance. The key to the company's success is the stability of its membership base.
Even amid inflation, Costco has refrained from increasing membership fees, demonstrating the company's confidence in its business model. The decision to time fee hikes at its discretion illustrates Costco's strategic strength, as it isn't solely reliant on these increases for bottom-line growth.
Analysts' Focus, Ratings and Consensus
Q3 Analysts' Focus: Analysts would be focusing on any announcement around a membership fee hike and a special dividend. The last time Costco increased its membership prices was in June 2017.
Also, Costco is a dividend payer with 19 years of history in dividend payments. It's been three years since Costco declared its last special dividend of $10 in December 2020. Given, the company's increasing and robust cash profile, investors are eyeing a special dividend this time.
Ratings & Consensus Estimates: The consensus among analysts rates the stock as a Buy. Though, it's important to mention that the stock has experienced a significant increase this year, rising 20% in the last six months and 8.4% in the past month. So, the current price offers no upside from the analyst average price target of $610.15.
Recent analyst recommendations may have served to boost the stock as well. Stifel has a Buy rating with a $615 price target on Costco stock. Truist Securities reiterated Buy with a price target of $619. Telsey Advisory Group rates the stock Outperform with a price target of $625.
Price Action: Shares of Costco closed 2.1% higher on Monday at $623.86.
