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Costco earnings on deck amid cooling sales, inflation pressure

Investors are closely watching Yahoo Finance Company of the Year Costco as it is set to report its fiscal first-quarter earnings Thursday after the market close.

Costco is coming off cooling sales in November as shoppers spend more cautiously amid news of increasing layoffs and stubbornly high inflation. The retail giant's same-store sales growth cooled vs. October, the company reported on Nov. 30.

Costco stock subsequently sold off — it is down more than 7% in December — as investors brace for a further sales slowdown in 2023.

Here's a lay of the land on Costco ahead of its earnings report:

What Yahoo Finance is watching

  • Sales trends in more expensive, discretionary products such as TVs and jewelry;

  • Gross profit margins with inflation coming off its peak;

  • Hints by management at a membership-fee increase in 2023.

Costco earnings: View from the C-Suite

Costco CEO Craig Jelinek to Yahoo Finance:

"Our jewelry business has slowed down. If you look at the really high-end television sets, they've slowed down. I think right now people are very, very value-conscious. They're always value-conscious, but I think more so now than ever."

Costco CFO Richard Galanti to Yahoo Finance:

"Look, over the last six or eight months as there's been inflation and concerns of recession, my answer is: It rains on everyone, maybe it drizzles on us, not hard rain, And so we've done a little better than our peers. This [month] was a slight downtick in those numbers. I've been through this rodeo many times over 38 years. We are just going to keep working to drive sales and drive value."

People shop for food items, including portioned turkey dinners, at a Costco store in Monterey Park, California on November 22, 2022. (Photo by Frederic J. BROWN / AFP)
People shop for food items, including portioned turkey dinners, at a Costco store in Monterey Park, California on November 22, 2022. (Photo by Frederic J. BROWN / AFP)

What Wall Street is saying

Citi retail analyst Paul Lejuez (neutral rating on Costco's stock):

"We estimate Costco's 1Q EPS of $3.01 compared to consensus of $3.12. Comparable sales is known so what really matters is margin. We know that non-foods have been a bit weaker as of late, which we believe may have driven some gross margin pressure from a mix shift to consumables (as we have seen at others like Dollar General and Family Dollar). We estimate gross margin of 10.6% vs consensus of 10.8%. Based on the stock’s recent move lower, some of this gross margin risk has likely been getting priced in. Based on Citi’s quant analysis, Costco is the most crowded stock within our universe, which always makes for a tough setup going into earnings, requiring a near perfect quarter In the case of Dollar General (another crowded stock within our universe), we saw that the less than perfect quarter pressured the stock."

CFRA retail analyst Arun Sundaram (hold rating on Costco's stock):

"Costco reports fiscal first quarter results on Dec. 8. In addition to weakening discretionary sales, we think Costco could face margin pressure from elevated supply chain costs (retailers have been receiving inventory earlier than expected), greater promotional activity, and higher wages."

More Yahoo Finance Company of the Year 2022 coverage:

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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