Costco is an American multinational corporation founded in 1983, which engages in the operation of over 850 membership warehouses through wholly owned subsidiaries. It has been the world’s largest retailer of choice and prime beef, organic food, rotisserie chicken and wine since 2016, and ranked in the top 5 largest retailers in the world since 2022. The company is scheduled to report its Q4 2023 earnings on 26th September (Tuesday), after market close.
The success of Costco’s business model (which includes offering goods in bulk at competitive prices) for decades has literally increased the number of its loyal customers who have chosen to become cardholders. Last year, active cardholders amassed to 118.9 million, up 6.5% from 2021. It was under 100 million before 2020. Customer retention rate was high (nearly 90% membership renewal each year) as well, contributed by the quality of the products and services that Costco offers. The company earned $4.22B in membership fee revenue last year, up 8.76% from 2021 (note that Costco’s competitor Walmart made only $2.2B in its Sam’s Club membership revenue).
In FY 2022, the company reported total sales revenue at $227.0B, up 15.9% from the previous year. In addition to the above mentioned, some factors which contributed to solid growth of the company include reduced supply chain costs, increased penetration of private-label brands, etc.
The company has also been working on reversing its shrinking digital sales recently (and anyway the share of e-commerce revenue of the company accounts for less than 10% of the total revenue). Some efforts include a two-year road map for improving and re-platforming the e-commerce website, mobile apps and mobile site, as well as increasing the number of engineering capabilities.
Nevertheless, Costco’s revenue remains flat at an average of $54B throughout FY 2023. Some headwinds that we should not ignore in this case are inflationary pressures and the high-interest-rate environment. Last week, the Federal Reserve held interest rates steady at a 22 year high (5.25%-5.50%), but at the same time signaled “higher for longer” in near future. One more rate hike is anticipated by the end of this year, whereas there will be fewer cuts than previously indicated in 2024.
Consensus estimates for Costco’s sales revenue hit $77.8B, a fairly positive outlook compared to previous quarters. In the same period last year, reported sales were $72.1B. If the reported figure aligns with the forecast, total sales revenue for FY 2023 would be $243.5B, up over 9% from FY 2022.
On the other hand, EPS is expected to reach $4.77, up over 62% from the previous quarter, and up over 13% from the same period last year. Forecast for final EPS throughout FY 2023 was $14.32, higher than in FY 2022 ($13.15).
Technical Analysis:
The #Costco share price closed last Friday at $558.73. The nearest resistance is seen at $568, a level that has been tested thrice. A bullish breakout above the said resistance may put $589 (61.8% Fibonacci Expansion) in focus, which is also a new high since April 2022. The psychological level $600 and ATH $611.96 would serve as the next resistance area. On the contrary, the 100-day SMA which coincides with FR 61.8% at $533 would be the next target after the minor support zone $550.50-$552.50. A close below this level would encourage sellers to continue testing the next level at $509 (FR 50.0%).
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Larince Zhang
Market Analyst
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