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

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

Why Costco’s Sales Could Rise in Fiscal 3Q17

What analysts expect

Analysts expect Costco Wholesale (COST) to report sales of $28.5 billion in fiscal 3Q17, which would represent an improvement of 6.4% over fiscal 3Q16. The company’s top line is expected to benefit from increased comp (comparable same-store) traffic and a rise in average transactions.

By comparison, Wal-Mart Stores’ (WMT) Sam’s club is projected to report a 1% rise in comps (comparable store sales) driven by increased traffic in its upcoming fiscal 1Q18 results. Target (TGT) is witnessing weak store traffic, however, which is expected to lower the company’s sales.

Why Costco&#8217;s Sales Could Rise in Fiscal 3Q17

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A look at Costco’s sales trend

Costco is one the few retailers in the US (SPY) that have largely remained immune to the growing threat from Amazon.com (AMZN). It has continued to post healthy sales growth, thanks to its strong base of loyal cardholders and high renewal rates. The company’s pricing advantage and its wide range of offerings have further supplemented sales growth.

Despite the company’s strong sales performance, however, Costco has failed to exceed the Wall Street consensus estimate for the past nine quarters as adverse currency movements have taken a toll on its top-line growth.

Sales improvements

The company’s sales have shown sharp improvements over the past four quarters. Its sales rose 3.7%, 2.9%, 4.0%, and 6.0% in fiscal 3Q16, 4Q16, 1Q17, and 2Q17, respectively.

Specifically, the company has witnessed healthy sales across most of its merchandise categories, thanks to increased comp traffic and average transactions. Through merchandise, food and sundries, hardlines, and softlines are all witnessing improved comps, partially offset by softness in tobacco and consumer electronics.

The company is expected to post healthy sales growth on the back of increased store traffic and average transactions. However, adverse currency movements, mainly in the British pound and the Mexican peso, will likely continue to hurt the company’s sales performance.

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