Costco Wholesale Corporation (COST), one of the leading U.S. warehouse club operators, reported fiscal second-quarter 2010 earnings that missed the Zacks Consensus Estimate by a penny, though they were up significantly from the prior-year quarter.
Total revenue climbed 11.3% year-over-year, with comparable-store sales up 9%, reflecting a comparable sales growth of 5% at U.S. locations and 26% gain at the international divisions. Rising gasoline prices and a weaker U.S. dollar were helpful to the comparisons. Excluding the effects of gasoline prices and a softer dollar, Costco’s comparable-store sales rose 3%, with U.S. comparable sales up 2%. International comparable sales were up 10%.
We have discussed the quarterly results at length here:
Costco’s Estimates Static
For fiscal years 2010 and 2011, the current Zacks Consensus Estimates are $2.90 and $3.22, representing year-over-year growth rates of 14.2% and 11.1%, respectively. But while the year-over-year comparisons are favorable, we haven’t seen much movement in the Zacks Consensus Estimates for this fiscal year or next, perhaps reflective of the very modest miss in the quarterly results.
Estimate Revisions Lack Agreement
This becomes obvious by taking a quick look at the ‘Agreement – Estimate Revisions’ table below. If anything, the Agreement table shows that the estimate revisions lack a directional agreement. For example, we see that while 9 estimates went up, 7 went down. We see a somewhat similar pattern for the next fiscal year as well. For a meaningful impact on the Zacks Rank, annual estimate revisions are required to show a directional agreement.
While ‘Agreement’ in estimate revisions is critical to the Zacks Methodology, the ‘Magnitude’ of the revisions is significant as well. And here again, we fail to see any meaningful enough revisions. As the Magnitude table below shows, the current and next fiscal year’s Zacks Consensus Estimates have hardly moved in the last two months.
Costco in Neutral Lane
Costco continues to be a dominant retail wholesaler based on the breadth and quality of merchandise offered. The company’s strategy to sell products at discounted prices has kept it afloat in a difficult consumer environment, as cash-strapped customers continue to see Costco as a viable option for low-cost necessities. However, pricing competition, deflationary pressures, currency headwinds and cost pressures are the potential risks that may weigh on the company’s top and bottom-lines.
Given this lack of a breakout in estimate revisions, it is no surprise that Costco shares are maintaining a Zacks #3 Rank, which translates to a short-term ‘Hold’ recommendation. Our long-term recommendation for the stock also remains Neutral.
Read the full analyst report on “COST”
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