Earnings Preview: Costco Expected To Keep Boosting Profit

Costco Wholesale Corp. (NASDAQ:COST) is expected to post fourth-quarter net income of about 20 percent above last year, the third consecutive quarter of growth for the leading U.S. warehouse club.

The company, based in Issaquah, Wash., is expected to report net income of $572.2 million, or $1.31 per share, in the quarter, on revenue of $31.7 billion. That would mark its third consecutive quarterly rise, according to estimates by Thomson Reuters.

In the year-earlier period, Costco reported net income of $478 million, or $1.08 a share, on revenue of $28.2 billion. Since last year, Costco has increased the annual fees it charges members and businesses to shop in its low-frills hypermarkets but has apparently benefited from its frugal operations.

That's one reason the estimates have trended upward over the past three months.

For the year ended Aug. 31, Costco is expected to earn $3.87 per share in 2012 on $98.5 billion, estimates Ian Gordon of Standard & Poor's, who has a "hold" rating on the shares. That would compare with earnings of $3.30 a share on revenue of $88.9 billion in fiscal 2011.

Most analysts polled by Zacks rate the company as a buy.

Costco recently reported a 6 percent rise in comparable-store sales, a key indicator that excludes recently opened stores, in each of the past two months. Comparable stores sales have risen every month in 2012, led by 8 percent each in January and February, with a 3 percent lag in June.

The company’s performance is linked to economic uncertainties that have driven cost-conscious consumers to low-cost necessities.

“We expect Costco to increase its market share in the near term,” S&P's Gordon said. “We think the company is relatively well positioned to generate long-term earnings growth due to new store expansion in both domestic and international markets.”

The company performed favorably in its product mix in an attempt to lure moneyed customers as well as those with lower incomes, Gordon said.

For the money crowd, Costco recently began selling fine art, such as prints by Matisse and Andy Warhol at above $1,000 apiece, that carry the same 14-percent maximum mark-up it has for all of its products. The retailer has announced it intends to add other luxury items, such as jewelry, in the future, according to a report by ABC.

Costco operated 600 warehouses, mostly in the U.S. and Canada, as of February. In June, the company announced it was buying out the 50 percent minority interest in its Costco Mexico subsidiary for $760 million, with about 45 percent coming from a cash dividend and the rest from the estimated $6 billion the company has in cash.

Shares of Costco closed at $101.35, down 44 cents on Monday. They've gained nearly 22 percent this year and 28 percent over the past year.