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Costco Crushed Second-Quarter EPS Estimates

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Mar. 8 2019, Published 1:11 p.m. ET

Earnings exceed estimate

Costco (COST) reported stronger-than-expected second-quarter EPS. Costco’s earnings of $2.01 per share jumped 26.4% on a YoY basis and handily surpassed analysts’ estimate of $1.69. Solid comps growth, the rise in membership fees income, and a lower effective tax rate supported Costco’s second-quarter EPS. Costco’s EPS has grown at a strong double-digit rate (at an average rate of 20.3%) in the past eight quarters including in the second quarter of fiscal 2019.

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In comparison, Walmart (WMT) and Target (TGT) also reported better-than-expected bottom-line results. Walmart’s adjusted EPS of $1.41 surpassed analysts’ estimate of $1.33 and increased 6.0% on a YoY basis. Improved comps and lower taxes drove Walmart’s bottom line. Meanwhile, Target’s adjusted EPS rose 12.5% and exceeded analysts’ estimate, driven by strong comps growth, lower interest expenses, and share repurchases.

Costco’s gross margin improved slightly on a YoY basis, which is impressive as the margins of mass merchandisers are under pressure owing to the investment in price and increase in supply-chain costs. Target’s gross margin decreased 40 basis points during the last reported quarter. Meanwhile, Walmart’s gross margin fell by 21 basis points.

Outlook

We expect Costco to continue to report strong growth in its EPS in the coming quarters. Improved comps and cost-savings are expected to support the EPS growth rate. Analysts expect Costco to report high-single-digit growth in its EPS in fiscal 2019.

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