E-commerce to Play Key Role in Costco's (COST) Q4 Earnings
Costco Wholesale Corporation COST is slated to release fourth-quarter fiscal 2020 numbers on Sep 24, after the closing bell. The results are likely to reflect strength in e-commerce sales. Consumers’ increased shift to online purchasing owing to the coronavirus outbreak seems to have worked in favor of Costco. The company’s e-commerce sales have been showcasing a sharp increase owing to growing stay-at-home trends to maintain social distancing amid the pandemic.
A Look at E-commerce Sales
Costco has been rapidly adopting the omni-channel mantra to provide a seamless shopping experience, whether offline or online. We note that e-commerce comparable sales soared 101.9% during the month of August. This followed an increase of 75.3%, 85.8% and 106.2% in the months of July, June and May, respectively. Costco operates e-commerce sites in the United States, Canada, the U.K., Mexico, Korea, Taiwan, Japan, and Australia.
To drive online sales, the company launched CostcoGrocery to deliver non-perishable items to buyers’ homes. Its partnership with Instacart facilitates same-day delivery of groceries to shoppers. The company acquired Innovel Solutions, a leading provider of third-party end-to-end logistics solutions. The buyout bolsters Costco’s e-commerce capabilities and facilitates sales of "big and bulky" items.
The role of such initiatives become more vital in situations like these, wherein social distancing has led to increased online shopping. Certainly, the company has been ramping up investments in the wake of rising competition from the likes of Dollar Tree DLTR, Dollar General DG and Target TGT.
Notably, Costco in its August sales release highlighted that during the 16-week fourth quarter ended Aug 30, e-commerce comparable sales soared 90.6%.
How Are Estimates Shaping Up?
The Zacks Consensus Estimate for Costco’s fourth-quarter revenues is pegged at $52,467 million, indicating an improvement of 10.5% from the prior-year quarter. The consensus mark for earnings has increased 1.8% over the past 30 days to $2.85. The figure suggests growth of roughly 6% from the year-ago period.
Costco Wholesale Corporation Price, Consensus and EPS Surprise
Costco Wholesale Corporation price-consensus-eps-surprise-chart | Costco Wholesale Corporation Quote
An Overall Picture
Costco’s growth strategies, better price management and decent membership trends have been contributing to its upbeat performance. In fact, the company’s strategy to sell products at discounted prices has helped it expand customer base. Under the current circumstances, people are exhibiting a preference for discount stores for essentials or other daily purchases. Apparently, Costco has emerged as viable option for them.
Certainly, the company’s strategic endeavors have been fueling traffic. However, analysts pointed that any deleverage in SG&A rate, higher labor and occupancy costs, and increased marketing and other store-related expenses might compress margins. Further, incremental wages and sanitation costs owing to the coronavirus outbreak cannot be ignored. (Read More: Sturdy Comps Performance to Aid Costco's Q4 Earnings)
Costco currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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