- Analysts estimate EPS of $2.60 vs. $2.62 in Q1 FY 2021.
- Comparable sales are expected to grow YOY, but at the slowest pace in five quarters.
- Revenue is expected to rise, but at a decelerating rate compared to recent quarters.
Costco Wholesale Corp. (COST) is coming off its strongest fiscal year in recent history, posting its fastest earnings and revenue growth in at least five years. That growth was initially fueled by customers sharply boosting purchases of food and home goods as they sheltered at home during the COVID-19 pandemic. But the pace of growth continued to accelerate amid an economy rebounding from the initial pandemic-induced shock.
Investors focus on whether Costco can maintain its momentum when it reports earnings on Dec. 9, 2021 for Q1 FY 2022. Costco's 2021 fiscal year (FY) ended in August. For Q1, analysts expect earnings per share (EPS) to decline for the first time since the third quarter of FY 2020, while revenue is expected to grow at its slowest rate since the final quarter of FY 2020.
Investors also will focus on Costco's comparable sales growth, a key metric that gauges growth in sales generated by the retailer's stores and digital channels that have been in operation for at least 12 months. Analysts expect quarterly comparable sales growth to be healthy, but to continue decelerating from the previous two quarters.
Shares of Costco have outperformed the broader market over the past year. That outperformance has come after lagging the market, sometimes badly, over a span of more than seven months from early January to mid-August of 2021. It first began to outperform around mid-October. Costco's shares have provided a total return of 41.0% over the past year, well above the S&P 500's total return of 26.5%.
Costco Earnings History
Costco reported Q4 FY 2021 earnings and revenue that beat analysts' estimates. EPS rose 20.2% compared to the year-ago quarter, decelerating from the previous quarter's rapid pace of growth. Revenue grew 17.4% year over year (YOY), marking the second fastest pace of growth in at least 20 quarters. Costco's e-commerce sales for the quarter rose 11.2% YOY.
In Q3 FY 2021, earnings and revenue also beat consensus estimates. EPS increased 45.5% as revenue expanded 21.5% compared to the year-ago quarter. It was the fastest pace of growth for either metric in at least 19 quarters. Costco said that it experienced a surge in demand during the quarter as the economy continued to rebound from the major disruptions sparked last year by the pandemic. However, Costco also said that its costs were noticeably rising, reflecting strong inflationary pressures.
Analysts expect mixed results in Q1 FY 2022. EPS is expected to fall 1.0% compared to the year-ago quarter, marking the first decline since Q3 FY 2020. Revenue is expected to rise 14.1% YOY, which would be the slowest growth rate since Q4 FY 2020. For full-year FY 2022, analysts forecast that EPS will rise 9.0%, which would be the slowest increase in at least the past six years. Annual revenue is expected to rise 9.8%, a significant slowdown from last year's pace of 17.5%.
|Costco Key Stats|
|Estimate for Q1 FY 2022||Q1 FY 2021||Q1 FY 2020|
|Earnings Per Share ($)||2.60||2.62||1.90|
|Comparable Sales Growth (%)||12.0||15.4||4.3|
Source: Visible Alpha
The Key Metric
As mentioned above, investors also will closely watch Costco's comparable sales growth. The retailer, which operates on a membership-based model, defines comparable sales as net sales generated from its membership warehouses (including relocations, remodels, and expansions), as well as e-commerce websites that have been in operation for over one year. Growth in comparable sales is achieved through an increase in the shopping frequency from new and existing members as well as in the amount they spend per visit. When comparable sales are growing, it's a sign that existing sales channels have not yet saturated the local market nor are those sales being cannibalized by the company's newly-opened stores.
Costco's annual comparable sales growth from FY 2017 through FY 2020 averaged about 6.9%. That growth accelerated significantly to 16.0% in FY 2021 from 7.7% in FY 2020. Comparable sales grew as much as 20.6% YOY in Q3 FY 2021 before decelerating to 15.5% in the final quarter of the fiscal year. Analysts expect growth to decelerate further to 12.0% in Q1 FY 2022, which would be the slowest growth rate since the final quarter of FY 2020. For full-year FY 2022, analysts forecast that comparable sales will decelerate dramatically to 8.1%, which would be half the previous year's rapid pace of growth.
The Wall Street Journal. "Costco Sales Rise 15% in Latest Quarter." Accessed Dec. 8, 2021.
The Wall Street Journal. "Costco’s Sales Are Rising but So Are Its Costs." Accessed Dec. 8, 2021.
Costco Wholesale Corp. "Event Calendar: Q1 Earnings Results." Accessed Dec. 8, 2021.
Visible Alpha. "Financial Data." Accessed Dec. 8, 2021.
Costco Wholesale Corp. "COSTCO WHOLESALE CORPORATION REPORTS FOURTH QUARTER AND FISCAL YEAR 2021 OPERATING RESULTS." Accessed Dec. 8, 2021.
Costco Wholesale Corp. "Form 10-K for the fiscal year ended August 29, 2021," Page 22. Accessed Dec. 8, 2021.