Should You Buy, Hold, or Sell Costco Stock Post-Q3 Earnings?
Costco Wholesale Corporation COST will report its third-quarter fiscal 2025 results on Thursday after the market closes. Thus, let's analyze Costco's anticipated earnings, the factors contributing to its long-term growth, and strategies for trading the stock post-earnings release.
For the fiscal third quarter, Costco's revenues and earnings are expected to improve, banking on an uptick in comparable store sales in April. Costco's core comparable sales in the United States jumped 7.1% last month and exceeded estimates despite a calendar-related issue from the shift in Easter timing.
Costco's U.S. store traffic and global traffic increased by 5% and 4.2%, respectively, while the average transaction size grew 2.4% from a year ago. Moreover, Costco's e-commerce sales experienced 13% growth in April from the comparable month last year.
Core sales in Canada and other international markets took a hit due to price rises and macroeconomic pressures. However, this wasn't due to an anti-American sentiment. Soft results in the international market were offset by strong sales in the Southeast, Midwest and Northeast U.S. regions.
Costco expressed worries regarding elevated beef prices but indicated that these pricing pressures will not affect sales in the fiscal third quarter as severely as the previous egg inflation did. As a result, the Zacks Consensus Estimate for Costco's fiscal third-quarter revenues is $63.1 billion, suggesting a 7.9% year-over-year increase. The Zacks Consensus Estimate for fiscal third-quarter earnings per share (EPS) is $4.25, indicating a 12.4% rise from the previous year.
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To top it off, Costco has consistently exceeded earnings expectations by an average of 0.8% over the past four quarters. This suggests that Costco may show earnings growth in its upcoming earnings report on Thursday after market close, which could have a favorable impact on its stock price. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)
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Costco is running a successful membership model, which bodes well for its long-term prospects. Consumers often struggle to make firm decisions when purchasing everyday goods. Yet, Costco has successfully retained customers since its establishment in 1983. This is because the company operates as a membership club rather than a traditional retailer, which incentivizes its members to enhance the value they receive in exchange for their annual fees.
By the way, membership fees have recently gone up to enhance Costco's profit margins during the second half of fiscal year 2025 and the start of fiscal year 2026. This revenue stream, which has a high profit margin, is expected to provide the company with more flexibility to handle the effects of tariffs without having to raise prices.
Furthermore, Costco enjoys a high level of customer loyalty, with the renewal rate presently reaching a record 93%. This suggests that shoppers are drawn to the company's business model, which offers low prices on high-quality products.
Costco made its supply chain more effective, increased item turnover, and simplified inventories by reducing the variety of products offered. All these have positioned Costco as one of the top performers in the retail sector, rivaling its peers such as Burlington Stores, Inc. BURL, Dollar General Corporation DG and Dollar Tree, Inc. DLTR, to name a few.
The increase in comparable store sales indicates that the upcoming quarterly results will be encouraging, likely resulting in a surge in the stock price. Investors are encouraged to take advantage of this upward trend by purchasing shares in Costco.
Additionally, Costco's solid customer loyalty and improvements in its operational processes will contribute to its growth in the near future. From a technical perspective, Costco stock is trading above both the short-term 50-day moving average (DMA) and long-term 200-DMA, indicating a bullish trend. This suggests that it's wise to invest in Costco stock.
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For now, Costco has a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
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