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How Will Costco Stock React to Its Fiscal 3Q17 Results?

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Part 2
How Will Costco Stock React to Its Fiscal 3Q17 Results? PART 2 OF 6

Inside Costco’s EPS Estimate for Fiscal 3Q17

EPS expected to rise

Washington-based Costco Wholesale (COST) is slated to report its fiscal 3Q17 results on May 25, 2017, after the market closes. On average, analysts expect Costco to report adjusted EPS (earnings per share) of $1.32, reflecting an increase of 6.5% on a YoY (year-over-year) basis.

By comparison, Target (TGT) and Wal-Mart Stores (WMT) could take a hit in their bottom-line results in the current fiscal year, given their significant price and business investments aimed at driving store traffic, but will likely remain afloat amid increased completion from online giant, Amazon.com (AMZN).

Inside Costco’s EPS Estimate for Fiscal 3Q17

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A look at the past quarter

Costco’s fiscal 2Q17 EPS (earnings per share) of $1.17 fell short of Wall Street’s estimate, falling 5.6% YoY (year-over-year) and marking the second consecutive quarter wherein the company has fallen shy of the analysts’ EPS expectation.

Lower profitability from gasoline due to inflation and increased sales, higher promotional spending, and adverse currency fluctuations all negatively impacted the company’s EPS in the past quarter. However, the company’s Citi Visa co-branded credit card facility positively impacted the bottom line by $0.16 as the company’s switch to Visa (V) from American Express (AXP) results in a lower fee.

The recent future

Costco’s bottom line results are expected to rise in coming quarters on the back of increased traffic and average transaction size. Besides, lower interest expenses on account of scheduled debt repayment in March could further cushion the EPS.

Analysts believe that most of the company’s current problems are transitory and will abate in coming quarters. However, deflationary pressure on margins and adverse currency movement will likely remain a drag.

Notably, investors looking for indirect exposure to Costco can consider ETFs like the VanEck Vectors Retail ETF (RTH), which invests 5.0% of its portfolio in the company.

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