Key Takeaways

  • Analysts estimate EPS of $2.35 vs. $1.89 in Q3 FY 2020.
  • Comparable sales are expected to rise three times faster than the same quarter a year ago.
  • Revenue is expected to grow at the fastest pace in more than four years amid the COVID-19 pandemic.

Costco Wholesale Corp. (COST) has seen its sales and earnings surge amid the COVID-19 pandemic as customers spent more on food, appliances and fitness products. The company's e-commerce sales have been especially strong.

Investors will be watching to see if these positive trends continue when Costco reports earnings after the market on May 27, 2021 for Q3 FY 2021. Costco's fiscal year (FY) ends in August. Analysts expect robust growth in both earnings per share (EPS) and revenue.

Investors will also be focused 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 to grow at their fastest pace in at least 19 quarters.

Shares of Costco have oscillated between outperformance and underperformance over the past year. The stock is currently lagging the market and has been since early January. But after falling to an eight-month low in early March, the stock has mounted a major advance and has recouped part of its recent losses. During the past 12 months, Costco shares have provided a total return of 30.9%, below the S&P 500's total return of 40.3%.

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

Costco Earnings History

Costco's stock continued to slide after the company missed EPS estimates for Q2 FY 2021 when it reported in early March. However, both revenue and comparable sales growth beat expectations and the stock began to rebound within a week of the earnings release. EPS rose 2.0% compared to the year-ago quarter, the slowest pace since Q3 FY 2020. Revenue grew 14.6%, which was the second fastest pace of growth since the final quarter of FY 2017.

In Q1 FY 2021, EPS rose 37.9%, marking the fastest increase in at least 15 quarters. Revenue expanded 16.7% compared to the year-ago quarter, marking the fastest pace of growth since at least the third quarter of FY 2017. Costco's e-commerce sales rose 86.4% as many customers continued to shelter at home and shop online during the pandemic.

Analysts expect growth in EPS and revenue to accelerate in Q3 FY 2021. EPS is expected to rise 24.3% while revenue grows 17.3%. It would be the fastest pace of revenue growth in at least 17 quarters. For full-year FY 2021, EPS is expected to rise 14.8%, which would be the fastest increase since FY 2019. Revenue is expected to grow 13.3%, which would be the fastest expansion in at least six years.

Costco Key Stats
  Estimate for Q3 2021 (FY) Q3 2020 (FY) Q3 2019 (FY)
Earnings Per Share ($) 2.35 1.89 2.05
Revenue ($B) 43.7 37.3 34.7
Comparable Sales Growth (%) 16.0 4.8 5.5

Source: Visible Alpha

The Key Metric

As mentioned above, investors will also be closely watching 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%. Annual comparable sales growth accelerated to 7.7% in FY 2020 from a pace of 6.1% in FY 2019. The acceleration was mostly driven by comparable sales in the fourth quarter, which expanded 11.4% compared to the year-ago quarter. Growth then continued to quicken to 15.4% in Q1 FY 2021 before slowing to 13.0% in the second quarter. Analysts expect the pace of comparable sales growth to accelerate to 16.0% in Q3 FY 2021, which would be the fastest pace since at least the first quarter of FY 2017. For full-year FY 2021, analysts expect comparable sales to expand 12.4%, which would be the quickest pace in at least six years.