What to Expect from Costco’s Fiscal Third Quarter

Costco Wholesale (COST) is scheduled to announce its fiscal 2019 third-quarter results after markets close on Thursday. Wall Street expects Costco to maintain its stellar sales and earnings growth led by industry-leading comparable sales growth.

Growth in traffic and average ticket size is expected to boost Costco’s comps, and its bottom line is expected to be boosted by higher comps, tight control on overhead costs, and a lower effective tax rate.

Large retailers including Costco, Walmart (WMT), and Target (TGT) continue to see traffic despite heightened competition, supporting their comps growth. During the last quarter, Target and Walmart both delivered impressive comps growth, and Costco outpaced them.

We expect Costco’s sales growth to continue to exceed Target’s and Walmart’s. However, its bottom-line growth is expected to slow because of tough comparisons and its tax rate.

Costco stock has risen 21.4% YTD (year-to-date), outperforming the benchmark index, which had risen 12.7% YTD as of May 24. In comparison, Walmart and Target have risen 10.2% and 23.4% YTD, respectively.