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Costco Q2 FY2022 Earnings Report Preview: What to Look For

Focus on COST comparable sales growth

Key Takeaways

  • Analysts estimate EPS of $2.73 vs. $2.14 in Q2 FY 2021.
  • Comparable sales are expected to rise YOY.
  • Revenue is expected to rise but at its slowest pace in four quarters.

Costco Wholesale Corp. (COST) has been experiencing a slowdown in earnings and revenue growth in recent quarters as the initial boost from the COVID-19 pandemic fades. Despite that, Costco's growth remains relatively strong. The company is sharply boosting spending on new stores and other projects to fuel further growth. It plans to invest $4 billion during its 2022 fiscal year ending August, about 42% more than 2020.

Investors will be watching to see if Costco can continue to post healthy growth in its top and bottom lines and stem the slowdown when the company reports earnings on March 3, 2022 for Q2 FY 2022. Costco's 2021 fiscal year (FY) ended August 29, 2021. For Q2, analysts expect the company's earnings per share (EPS) and revenue to rise compared to the year-ago quarter.

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 decelerate to its slowest pace since the final quarter of FY 2020.

Shares of Costco have outperformed the broader market over the past year. After lagging the market between late March 2021 and mid-April 2021, the stock began to outperform. Its outperformance gap gradually widened through to mid-October, when its rise began to accelerate. The stock peaked around late December and has shed some of its gains over the past few months. Costco's shares have provided a total return of 58.8% over the past year, well above the S&P 500's total return of 10.4%.

One Year Total Return for S&P 500 and Costco
Source: TradingView.

Costco Earnings History

Costco reported Q1 FY 2022 earnings results that beat analysts' expectations. EPS rose 13.5% compared to the year-ago quarter, continuing a deceleration trend that began in the previous quarter. Revenue grew 16.6% year over year (YOY), also slowing from the previous quarter's pace of growth. The company said that sales for all of its core merchandise categories increased but that increases were strongest in non-food items, gasoline, and travel items. It also noted that merchandise costs continued to be impacted by inflation.

In Q4 FY 2021, Costco's earnings and revenue surpassed consensus estimates. EPS increased 20.2% YOY, slowing dramatically from the previous quarter's pace of 45.5%. Revenue growth slowed to a YOY pace of 17.4%, but it was still the second-fastest pace of revenue growth the company has reported in at least 14 quarters. The company noted that during FY 2021 its sales mix began to return to pre-pandemic levels, including increases in non-food items. It also said that increases in gasoline prices positively impacted net sales during the year.

Analysts expect mixed growth trends for Costco's earnings and revenue in Q2 FY 2022. EPS growth is expected to accelerate to a YOY pace of 27.8%, more than double the pace in the previous quarter. Revenue, however, is expected to rise 14.7% YOY, a robust pace but continuing the ongoing deceleration trend. For full-year FY 2022, analysts expect EPS to rise 14.3% as revenue expands 11.8%. Those annual rates reflect a slowdown from the previous year's growth, but they are still healthy in light of the previous five years.

Costco Key Stats
  Estimate for Q2 FY 2022 Q2 FY 2021 Q2 FY 2020
Earnings Per Share ($) 2.73 2.14 2.10
Revenue ($B)  51.3 44.8 39.1
Comparable Sales Growth (%) 11.8 13.0 8.9

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. Quarterly comparable sales growth, after peaking at a pace of 20.6% YOY in Q3 FY 2021, has been slowing. Comparable sales rose 15.5% YOY in the final quarter of FY 2021 before rising at a slightly slower pace of 15.0% YOY in the first quarter of FY 2022. Analysts expect comparable sales growth to slow to a pace of 11.8% YOY in Q2 FY 2022, which would be the slowest pace since the final quarter of FY 2020. For full-year FY 2022, analysts are currently forecasting comparable sales to rise 10.0%. Even with Costco's general trend of quarterly deceleration, it still would be the second-fastest pace of growth in at least six years.

Article Sources

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  1. The Wall Street Journal. "Companies Boost Capital Spending, Betting Demand Will Stay Strong." Accessed March 2, 2022.

  2. Costco Wholesale Corp. "10-Q for the quarterly period ended November 21, 2021," Page 24.

  3. Costco Wholesale Corp. "Event Details: Q2 Earnings and February Sales Results."

  4. Costco Wholesale Corp. "COSTCO WHOLESALE CORPORATION REPORTS FOURTH QUARTER AND FISCAL YEAR 2021 OPERATING RESULTS." Accessed March 1, 2022.

  5. Visible Alpha. "Financial Data."

  6. Costco Wholesale Corp. "10-Q for the quarterly period ended November 21, 2021," Page 20.

  7. Costco Wholesale Corp. "Form 10-K for the fiscal year ended August 29, 2021," Pages 24 & 25.

  8. Costco Wholesale Corp. "Form 10-K for the fiscal year ended August 29, 2021," Page 22.

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