Analyst: Expect Another Stellar Quarter From Costco

Costco Wholesale Corporation COST is scheduled to release its fiscal year fourth-quarter results after the market close Thursday. Commenting on the impending financial results, UBS said Costco appears well positioned to post another solid quarter.

As such, the firm maintains its Buy rating and $190 price target on the shares of the company.

Analysts, on average, expect the company to report earnings of $2.02 per share, up from $1.77 per share in the year-ago period. Revenues are estimated to have risen 13.60 percent to $41.55 billion.

Strong Business Model, International Business

UBS analyst Michael Lasser sees the company's recent monthly sales results as signaling the strength of the company's business model, despite investor concerns about the evolving competitive landscape. Specifically, the firm noted that the company reported 4-percent traffic growth in the months corresponding with its fourth quarter in the U.S. (see Lasser's track record ">here).

The positive results from Costco's Iceland opening and continued momentum in Asia, according to the analyst, confirm that Costco remains one of the few retail concepts that resonate in international markets.

UBS said these factors along with a slight boost from forex would drive its expectations for $935 million in membership fee income, which is above the consensus estimate of $924 million.

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Going forward, the firm expects Costco to continue to benefit from accelerating food inflation and a lack of tobacco headwinds. Additionally, the firm expects tailwinds from its recent LivingSocial/Groupon Inc GRPN promotion to support a return to positive members/average warehouse growth, despite elevated cannibalization levels.

"We believe continued strength in comp & membership trends should help its stock see a return to the consistency premium it's historically enjoyed," the firm added.

Earnings Upside Likely

The firm said Citigroup Inc C, Visa Inc V credit card spending outside clubs continues to rise, helping to offset gross margin pressure from rising gas prices. The firm estimates a 15-basis-point decline in SG&A, driven from leveraging expenses off higher revenue growth and the extra week, driving its $2.03 per share earnings estimate.

Meanwhile, the firm noted that Costco managed to see 26-percent comp growth in its digital business in August, up from the 11 percent reported for its fiscal year third quarter. Although the firm doesn't expect e-commerce to be given priority over brick-and-mortar operations, it does think a broader digital presence could help it maintain its relevance & stay a step ahead of rivals such Wal-Mart Stores Inc WMT's Sam's Club.

Related Link: The Retailers Strike Back: Much-Maligned Sector Shows Signs Of Life _______ Image Credit: By Tony Webster from Minneapolis, Minnesota, United States - Costco Wholesale Store, CC BY-SA 2.0, via Wikimedia Commons