Costco reports earnings today. What to expect.

Costco visits increased 8.9% year-over-year in the first quarter, outpacing foot traffic growth at competitors Sam’s Club, BJ’s Wholesale Club
,

Objective
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and Walmart
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according to data from Placer.ai.

“With such strong and continued growth, COST offers exactly what the market is currently looking for, given that retail investors have very little appetite for exposure to market share losers and are increasingly favoring market share winners,” Lasser wrote.

Analysts expect Costco to report earnings of $3.71 per share on revenue of $58.2 billion, in line with FactSet consensus estimates. Same-store sales are projected to increase 5.9%.

Costco shares have gained 22% this year, while

S&P500

increased by approximately 10%.

Warehouse clubs like Costco have performed well in recent years as rising inflation forced consumers to look for cheaper groceries and household items. Because Costco’s membership fees generate more than 70% of total operating profit, the company is often able to undercut other retailers, which should continue to drive sales in the long term, wrote Brian Yarbrough, an analyst at Edward Jones.

The only potential downside seems to be the high share valuation. Costco trades for about 48 times next year’s earnings, hovering near record highs and outperforming even major retailers Amazon.com and Walmart
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which provide a price-to-earnings ratio of 40 and 26 times earnings, respectively.

“With valuations at an all-time high, any signs of a slowdown (or change in strategy) could put the stock at risk of a pullback,” Gordon Haskett analyst Chuck Grom wrote in an April note downgrading the stock.

Indeed, Costco shares have fallen about half the time following the company’s last 21 earnings reports, notes Oppenheimer analyst Rupesh Parikh.

However, for a long-term investor, a potential withdrawal is an opportunity to buy shares at a slight discount, he added.

Bulls like Parikh and Lasser – who both rate the stock at a “buy” level – believe the stock’s premium valuation is justified given the company’s track record of delivering shareholder value and continued sales growth potential.

Additionally, the company is long overdue for an increase in its annual membership fee, which it last raised in 2017. Costco has historically raised its annual premium roughly every five years, but has staggered it to avoid discouraging value-seeking consumers to offset inflation.

“We believe COST can continue to attract cash-strapped consumers in the future and has the potential catalyst of a membership fee increase likely this year,” Lasser added.

Write to Sabrina Escobar at [email protected]