investing

Costco (COST) Earnings Preview: Can the Warehouse Club Make Wall Street Forget Amazon?

Better-than-expected sales and profits after Thursday’s closing bell would help allay investors’ Amazon.com fears.

Don't blame owners of Costco Wholesale (COST) stock if they're a little on edge as Thursday's earnings report nears. After a go-go half-decade that saw shares of this safe consumer staples play more than double between 2011 and 2015, Costco has delivered a total return of just 10% since Jan. 1, 2016.

That's a bitter pill to swallow when you consider Standard & Poor's 500-stock index has returned close to 30% in that time. (All prices and returns as of Oct. 2, 2017.)

But Costco investors may receive some respite after Thursday's closing bell, when the warehouse-style retailer reports earnings for its fiscal fourth quarter ended Aug. 27.

COST shares have climbed a mere 4% so far this year to vastly underperform the S&P 500 by 9 percentage points. While Costco has suffered from a few headwinds in 2017, the lion's share of the blame goes to Amazon.com’s (AMZN) $13.4 billion buyout of organic grocer Whole Foods (WFM), announced in mid-June. Costco joined the likes of Walmart (WMT) and Target (TGT) in quickly plunging on the news, and while all three have started to recover since then, COST remains off about 10% since.

The fear sparking the selling is that Amazon – using Whole Foods' physical locations as a distribution network – will better be able to build out its AmazonFresh grocery delivery service, further cutting into sales at brick-and-mortar operations such as Costco’s. However, now that Wall Street analysts have weighed in and investors have expressed their worries, the next step is waiting for reality to play out.

Given that it could be a long time between now and when Amazon begins to make a noticeable dent in the grocery market, that means the focus should shift back to actual operations. On that front, the odds favor Costco.

For one, Costco should benefit from a small bump in membership fees (an extra $5 for individual/business memberships; an extra $10 for “Executive”-level privileges) for about 35 million members effective June 1, 2017.

Costco also reported a 10% year-over-year increase in net sales for the month of August, which includes a 7.3% improvement in comparable-store sales. That latter figure far outpaces the 4.1% growth in comparable-store sales for the full 52-week period through August, but perhaps more important is that Costco is growing – something that much of the retail sector has struggled to do at all in 2017.

In fact, Wall Street's expectations for Costco's fiscal fourth quarter – roughly 14% growth in both earnings (to $2.01 per share) and revenues ($41.6 billion) – should have most retailers chartreuse with envy.

A beat Thursday would prove a much-needed reminder of Costco’s operational strength, and likely help put investors' Amazon fears on the back burner for a little while.

Most Popular

25 Best Kirkland Products You Should Buy at Costco
Smart Buying

25 Best Kirkland Products You Should Buy at Costco

Many of warehouse club Costco's store-branded Kirkland Signature items get high marks for quality and value. Check out our picks.
July 21, 2021
Warning: You May Have to Pay Back Your Monthly Child Tax Credit Payments
Tax Breaks

Warning: You May Have to Pay Back Your Monthly Child Tax Credit Payments

Unlike stimulus checks, you might have to repay your monthly child tax credit payments if you get too much money from the IRS.
July 16, 2021
13 States That Tax Social Security Benefits
social security

13 States That Tax Social Security Benefits

You may have dreamed of a tax-free retirement, but if you live in these 13 states, your Social Security benefits are subject to a state tax. That's on…
July 26, 2021

Recommended

Readers Find Some Weird Winners
Investing for Income

Readers Find Some Weird Winners

Most of the time, I find flaws in offbeat investments with high distributions. But sometimes oddities have their day of glory.
July 30, 2021
How to Play the High-Yield Rally
Becoming an Investor

How to Play the High-Yield Rally

Junk bonds have been on a tear, so this fund has shifted to defense.
July 29, 2021
Bankruptcy Filings Chalked Up to COVID-19
investing

Bankruptcy Filings Chalked Up to COVID-19

Bankruptcy filings triggered by COVID-19 difficulties continue to pile up. Here, we look at 32 big-name companies that sought out bankruptcy protectio…
July 27, 2021
Shield Your Portfolio From Inflation
Becoming an Investor

Shield Your Portfolio From Inflation

Use our picks to hedge against rising prices that can eat into your investment returns.
July 27, 2021