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Costco's Earnings May Still Surprise. Don't Expect a Membership Fee Raise.Costco's Earnings May Still Surprise. Don't Expect a Membership Fee Raise. Barron's (Online); New York Wall Street isn't expecting to be blown away by Costco Wholesale's earnings. But the wholesale retailer could still spring a few surprises on investors when it reports fourth-quarter results on Thursday. Costco (ticker: COST) is one of the few companies that still provides monthly sales updates, eliminating speculation. Recent data suggests the company's top line remains healthy, with same-store sales ticking up above 30% on a three-year basis in August. Analysts are predicting Costco's quarterly revenue to clock in at $70.8 billion, while yearly revenue is expected to surge to $222.7 billion, according to FactSet. Same-store sales are projected to grow by 13.7% in the quarter, up from 9.4% in the year-ago quarter. The upside—or downside — for the stock lies in the company's margins, and whether the retailer is able to deliver a bottom line that is as strong as its top line. The company fell short of that target in the previous quarter as inflation took a bite out of profit, prompting the stock to drop in the wake of the report. "They operate on really thin margin structure, so small surprises can make a big difference," said John San Marco, senior research analyst at Neuberger Berman. Volatility in fuel and fresh food prices can creep up on bottom lines, San Marco said, which could cause a pullback in the stock. But any downside would be short-lived, he said. "When demand growth is as strong as it's been at Costco I think that greatly tilts the odds of positive earnings," he added. Most analysts agree, with 62% rating the stock a Buy heading into earnings, and 38% rating it a Hold. The biggest negative surprise may come for those who believe that Costco will be raising its membership fees after Walmart's (WMT) Sam's Club division announced it would hike fees for the first time in nearly a decade to offset inflation. "Investors expecting a fee hike could be disappointed in the near term as the COST team has gone out of its way, in our view, to suggest that 'now is not the right time to raise the membership fee,'" wrote Gordon Haskett analyst Chuck Grom. Costco stock ticked down 0.4% in afternoon trading on Wednesday, while the S&P 500 lost 0.8% and the Dow Jones Industrial Average fell 0.9%. The company reports earnings after the market closes on Thursday. |
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