Costco Q4 FY2021 Earnings Preview: Expected Growth and Stock Insights for 2021

Spotlight on Costco's Comparable Sales Growth

Highlights to Watch

• Analysts predict an EPS of $3.59, up from $3.13 in Q4 FY2020.
• Year-over-year comparable sales growth is expected to continue.
• Revenue is projected to increase significantly, driven by renewed consumer stockpiling due to the Delta COVID-19 variant.

Costco Wholesale Corp. (COST) is experiencing one of its most impressive fiscal years in recent memory. The surge in sales is largely attributed to customers increasing purchases of food and household essentials while staying home during the ongoing COVID-19 pandemic. Despite widespread vaccinations, the emergence of the highly contagious Delta variant has triggered another wave of stockpiling, prompting Costco to reinstate purchase limits on select items in late August, a strategy first implemented early in the pandemic.

Investors eagerly await the company's Q4 FY2021 earnings release on September 23, 2021, marking the end of Costco's fiscal year in August. Expectations include strong earnings per share (EPS) and revenue growth, though at a moderated pace compared to the previous quarter.

Comparable sales growth remains a critical metric for investors, measuring sales from stores and digital platforms operational for at least 12 months. While analysts anticipate a slight deceleration from Q3, the growth rate is still forecasted to outperform historical averages.

Costco shares have outperformed the broader market over the past year, delivering a 37.7% total return compared to the S&P 500's 32.7%. After a period of underperformance from January to early August 2021, the stock gained momentum mid-June, surpassing market returns by early August.

Costco’s Earnings Performance Overview

In Q3 FY2021, Costco significantly exceeded analyst expectations with EPS growth of 45.5% and revenue growth of 21.5% year-over-year, marking the fastest growth rates in at least 18 quarters. However, rising supply chain costs, including increased container and shipping fees, pose potential risks to future profit margins.

Q2 FY2021 results were mixed, with EPS growth slowing to 2.0%, the slowest since Q3 FY2020, while revenue rose 14.6%, surpassing estimates. Supply chain disruptions affecting shipping containers, semiconductor chips, and aluminum availability contributed to these challenges.

For Q4 FY2021, analysts forecast a 15.0% increase in EPS and 15.4% revenue growth year-over-year. Full-year FY2021 projections include a 22.4% EPS increase and 16.9% revenue growth, representing the fastest expansion in at least six years.

Source: Visible Alpha

Key Performance Indicator: Comparable Sales Growth

Comparable sales growth is a vital indicator of Costco's health, reflecting sales from membership warehouses and e-commerce sites operational for over a year. Growth stems from increased shopping frequency and higher spending per visit among members. Sustained growth suggests market saturation has not been reached and new store openings are not cannibalizing existing sales.

From FY2017 to FY2020, Costco’s annual comparable sales growth averaged 6.9%, accelerating to 7.7% in FY2020 from 6.1% in FY2019. Q4 FY2020 saw an 11.4% year-over-year increase, with growth peaking at 15.4% in Q1 FY2021 before moderating to 13.0% in Q2. Q3 FY2021 recorded a 20.6% rise, the fastest in over four years. Analysts expect Q4 FY2021 comparable sales growth of 13.5%, maintaining robust momentum. The full-year forecast anticipates a 15.3% increase, the strongest in at least six years.

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