Costco (COST:Nasdaq) is set to report fiscal first-quarter
earnings this Wednesday, and a conference call is scheduled
Following last week's November comparable-store sales --
which were a little light of expectations of 4% core
(consensus was 5%) -- estimates have come down. In general
we'd say expectations are pretty low even though, in this
challenging macroeconomic environment, a 4% comp was a
pretty good showing. That's especially when we compare this
with Wal-Mart (WMT:NYSE) comps for its quarter, which fell
0.3%. Sam's Club same-store sales rose just 1.2%, and Target
(TGT:NYSE) numbers were up just 0.9%.
Equally impressive was Costco's store-traffic growth rate,
which rose 4.5% but was partially offset by the 2% drop in
the ticket. There's no doubt that the monthly figure was
below what we're used to seeing for this company, and it
will be key listening to what CEO Craig Jelinek has to say
regarding monthly traffic trends and the state of the consumer.
We thought expectations were a little ahead of themselves
into the monthly comp number, which is why we trimmed back
the position last week -- and why it remains a Three-ranked
position. But the driver of the story in the long run will
be the membership-fee income (MFI) growth, and that part of
the story is unchanged. MFI growth is one of the reasons we
own and like the stock, as it helps to improve visibility to
the underlying earnings power. Recall that 75% of the
company's top line constitutes recurring revenue from the
MFI figure. First-quarter MFI sales are expected at $550
million, or up 8.5% year over year on a constant-currency basis.
Store growth is expected to be 5%, and member/store growth
should be close to 2%. Gross margin, excluding MFI, is
expected at between 10.5% and 11%. Earnings before interest
and taxes is forecast at $710 million, while the average
earnings target is $1.02 per share.
Jim Cramer, Stephanie Link, and TheStreet Research Team
DISCLOSURE: At the time of publication, Action Alerts PLUS
was long COST.
Expectations are high this time around.
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