Previewing the Q3 Earnings Season

Sheraz Mian

In This Article:

Costco COST shares were down following the company’s mixed quarterly release where it narrowly missed on the top-line even as it handily beat bottom-line estimates. Other than the modest revenue miss, there is not a whole lot in the report that Costco shareholders can complain about, as the company continues to deliver impressive results in a consumer spending backdrop that many of its peers are finding challenging.

Costco’s quarterly earnings were up +6.1% on +1% higher revenues, with comparable same-store sales up +5.3% and +5.5% in the U.S. and Canada, respectively. Costco continues to outperform with double-digit gains in discretionary categories like jewelry, furniture, tires, etc., and is seeing strong momentum on the digital side where comps were up +19.5%.

The pullback in Costco shares following the release is primarily a function of the stock’s premium valuation following an impressive year-to-date run. The stock has handily outperformed the Zacks Retail sector and the broader market in the year-to-date period, up +34.7% vs. +20.3% for the Zacks Retail sector and +20.5% for the S&P 500 index.

Costco shares are trading at 50.8X forward 12-month consensus EPS estimates, which compares to a 5-year low of 29.5X, high of 55.8X, and median of 35.9X. Such a premium valuation could be justified given Costco's high-income consumer base and operating excellence, but it nevertheless requires spotless results. Costco’s results were good, but they weren’t spotless, as the revenue miss shows.

The Costco report was for its fiscal fourth quarter that ended on September 1st, which we and other data vendors consider part of the Q3 tally. The results in recent days from FedEx FDX, Oracle ORCL, and others were also for the companies’ fiscal quarters ending in August and, therefore, get counted as part of our overall 2024 Q3 earnings season tally. As we have noted in this space before, the Oracle report was really impressive while the FedEx release represented the opposite.

Including Costco, FedEx, Oracle, and others, we now have such Q3 results from 14 S&P 500 members, with another 6 index members on deck to report results this week. The notable companies reporting this week include Nike, Conagra, Constellation Brands, and others.

Total Q3 earnings for these 14 index members that have reported already are up +26.8% from the same period last year on +3.4% higher revenues, with 71.4% beating EPS estimates and 78.6% beating revenue estimates.

The comparison charts below put the Q3 earnings and revenue growth rates for these 14 index members in a historical context.

Recommended Stories