Costco Q2 Earnings Preview: Membership Fee Increase Could Be Coming, Hot Dog & Soda Combo To Stay The Same

Retailer Costco Wholesale Corporation COST will report second-quarter financial results after market close Thursday, March 7, 2024.

Here are the key earnings estimates, what analysts are saying and key items to watch.

Earnings Estimates: Analysts expect Costco to report second-quarter revenue of $59.16 billion, according to data from Benzinga Pro.

The company reported revenue of $55.27 billion in last year's second quarter. Costco beat revenue estimates from analysts in two straight quarters and has beaten estimates in seven of the last 10 quarters.

Analysts expect the company to report earnings per share of $3.62 for the second quarter, compared to $3.30 in last year's second quarter.

Costco has beaten analyst estimates for earnings per share in the last four straight quarters and nine of the last 10 quarters.

Related Link: Costco’s Technical Momentum Builds Ahead Of Q2 Earnings

What Analysts Are Saying: With Costco shares hitting all-time highs, there could be limited upside ahead of second-quarter results, Oppenheimer analyst Rupesh Parikh said in an investor note.

Parikh has an Outperform rating and raised the price target from $760 to $805.

"We see a growing risk of a pullback. For longer-term players, we would take advantage of any dips," Parikh said.

A risk for the analyst with Costco's share price is potential profit taking by investors. The concern comes with Costco shares up 45% in 2023, outpacing the S&P 500's gain of 24%. Year-to-date in 2024, Costco shares are up 15% and also outperforming the S&P 500's gain of 8%.

"COST shares now trade at or above prior peak valuations across all metrics. On absolute P/E, they trade at 46.4x vs. recent historical average of 34.1x."

Here’s a look at other analyst ratings and price targets for Costco.

• Telsey: Outperform rating, raises price target from $750 to $785
• Goldman Sachs: Buy rating, raises price target from $665 to $749
• Wells Fargo: Equal-Weight rating, raises price target from $610 to $675

Key Items to Watch: One of the biggest items to watch for Costco is the potential for an increase in annual membership fees. The move would come as the company welcomes new Chief Financial Officer Gary Millerchip, previously of Kroger, to the role on March 15.

Costco last raised its membership fee in June 2017 and typically raises the annual fee every five to six years. The company has hinted that a membership fee increase is a matter of when and not if.

With a new CFO coming onboard and the company looking to grow revenue and profits, a membership fee coinciding with the hire could be the perfect combination.

The new CFO will be able to make changes and try to grab more revenue and profits for the company. One item he won't be able to change is the $1.50 hot dog and soda combo available in stores.

Costco has shut down rumors over the years that it would be raising the price of the popular combo despite rising inflation.

A famous story has circulated over the years that former Costco CEO Craig Jelinek asked Costco founder Jim Sinegal about raising prices of the combo. The story goes that Sinegal told Jelinek, ‘if you raise the effing hot dog, I will kill you."

Outside of the hot dog and soda combo price and the potential membership fee increase, another item to watch could be the company's international expansion.

Costco opened its first store in China in January and experienced huge crowds and people waiting hours to get into the store. An update on the potential of more stores and the impact of China could be well received by investors and analysts.

COST Price Action: Costco shares are up 2% to $772.57 on Wednesday versus a 52-week trading range of $465.44 to $775.10.

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